Leveraged loans totaling USD 6.5 billion, secured bonds worth USD 3 billion, and unsecured bonds worth another USD 3 billion make up the debt package for Twitter.
It isn’t ideal, in the eyes of the banks, according to Wedbush Securities analyst Dan Ives. However, he said the banks were forced to finance the deal because they had no other option.
Leveraged financing sources have told Reuters that the potential losses for Wall Street banks involved in the Twitter debt in such a market may total hundreds of millions of dollars.
The other banks declined to comment, while Societe Generale did not respond to a request for comment. Twitter also chose not to respond. A request for comment from Elon Musk did not immediately receive a response.
In early October, a group of lenders was forced to abandon their efforts to sell USD 3.9 billion in debt used to finance Apollo Global Management Inc.’s acquisition of Lumen Technologies Inc.’s telecom and internet operations.
That followed a consortium of banks having to incur a USD 700 million loss on the sale of around USD 4.55 billion in debt supporting the leveraged buyout of Citrix Systems Inc., a provider of business software.
According to Chris Pultz, portfolio manager for merger arbitrage at Kellner Capital, “the banks are on the hook for Twitter.” They incurred a significant loss on the Citrix purchase a few weeks ago, and they’re facing even more difficulty with this deal.”
Due to the burden Citrix and other transactions have placed on their balance sheets, banks have been obliged to reduce their use of leveraged financing, which is not expected to change very soon.
Additionally, as the prognosis for dealmaking became less favorable, US banks began to experience losses on their exposure to leveraged loans during the second quarter. On October 10, banks will start disclosing their third-quarter earnings.