Wall Street Banks Move to Offload Debt from Elon Musk's X Acquisition

Wall Street banks are preparing to sell billions of dollars in debt tied to Elon Musk's 2022 acquisition of the social media company now known as X, according to a Reuter's recent report. Morgan Stanley, along with Bank of America, Barclays, and other lenders, had initially financed Musk's $44 billion purchase of the company, which was previously called Twitter. The deal, financed with $13 billion in loans, has been a challenging burden for the banks due to the company's volatile financial performance since the acquisition.

Sources familiar with the matter revealed that Morgan Stanley has initiated discussions with investors and is planning to sell up to $3 billion in senior debt as early as next week. The banks aim to sell the debt at 90-95 cents on the dollar, while retaining more junior holdings. In a private transaction, approximately $1 billion of debt has already been sold to several investors, according to people with knowledge of the matter.

The banks face a considerable challenge in convincing investors that X's financials have stabilized. Traditionally, banks sell acquisition-related debt shortly after the deal closes, but due to unfavorable market conditions and X's turbulent performance, they have held onto the loans much longer than anticipated. This strategy was intended to avoid selling the debt at a steep discount and locking in losses.

The acquisition's financing has been one of the most scrutinized deals on Wall Street, with some labeling it one of the worst agreements for banks since the 2008 financial crisis. Musk's purchase price was deemed high even at the time of the deal, and the platform's initial post-buyout struggles - marked by a loss of major advertisers and declining revenue - have further diminished its value.

Despite these setbacks, there are signs of recovery. Advertisers are gradually returning to the platform, and the company's revenue trajectory has improved, insiders noted. Musk has publicly highlighted X's increasing influence, recently stating in an email to staff, "Over the last few months, we've witnessed the power of X in shaping national conversations and outcomes." He also praised the platform's commitment to free speech, though he denied sending this particular email when queried by the media.

Investors appear cautiously optimistic. Some have expressed interest in acquiring the debt, believing that the company's financial performance is improving. However, equity investors in X have already written down their stakes by as much as 75%, reflecting ongoing uncertainty about the platform's long-term prospects.

Meanwhile, the banks have continued to earn significant interest payments on the loans, which are priced higher than investment-grade benchmarks. The eventual sale of the debt will be a critical step in determining whether Wall Street lenders can minimize their losses on this high-stakes deal.