X, the social network formerly known as Twitter, looks like a bad investment right now.
As readers may recall, billionaire Elon Musk borrowed $13 billion from Morgan Stanley, Bank of America and five other major banks to finance the $44 billion acquisition of Twitter, as it was then known. According to The Wall Street Journal, the deal has become the worst bank merger financing deal since the 2008-2009 financial crisis, resulting in writedowns and — in at least one case — curtailed compensation.
When banks lend money for acquisitions like this, they typically sell that debt to others to service, earning a commission on the transaction. But that hasn’t been possible with X. Because of the company’s weak financials, the loans have burdened the banks for much longer than other comparable commercial loans, becoming what the industry calls “hung deals.”
Citing sources familiar with the matter, the WSJ reports that the banks agreed to make their loans “largely because the lure of banking with the world’s richest person was too attractive to pass up.” Now it seems like a costly mistake unless the banks are able to collect interest payments from X and a repayment of the principal when the loans mature.
