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    Banks face USD500M loss on Twitter debt

    THE STAR – When banks led by Morgan Stanley agreed in April to help finance Elon Musk’s purchase of Twitter Inc, they were eager to aid an important client, the richest person in the world. Now neither Musk nor the banks have an obvious way to wriggle out of it.

    Lenders that also include Bank of America Corp, Barclays Plc and Mitsubishi UFJ Financial Group Inc (MUFG) committed to provide USD13 billion of debt financing for the deal.

    Their losses would amount to USD500 million or more if the debt were to be sold now, according to Bloomberg calculations.

    They agreed to fund the purchase whether or not they were able to offload the debt to outside investors, according to public documents and lawyers who have looked at them. “I think that those banks would like to get out of it, I think the deal makes less sense for them now, and that the debt will be harder to syndicate to investors,” said, partner at law firm Moses Singer.

    But Fischer, a former senior trial counsel at the Securities and Exchange Commission who isn’t involved in Twitter, said there’s no legal basis for them to back out.

    Junk bond and leveraged loan yields have surged since April, meaning that banks will lose money from having agreed to provide financing at lower yields than the market will accept now.

    Pedestrians outside Twitter headquarters in San Francisco, California. PHOTO: THE STAR

    Any pain the banks bear from this deal comes as lenders have already sustained billions of dollars of writedowns and losses this year after central banks worldwide have started hiking rates to tame inflation.

    Even if the banks could find buyers for Twitter debt in the market now, which is far from certain, selling bonds and loans tied to the deal probably wouldn’t be possible before the buyout closes.

    Banks have a pipeline of around USD50 billion of debt financing they’ve committed to provide in the coming months, according to Deutsche Bank AG estimates.

    While usually banks would sell bonds and loans to fund those deals, investors are less eager to buy now than they were toward the beginning of the year, and offloading this debt will be hard.

    That’s forcing banks to provide the financing themselves on a number of deals, a strain on their earnings and capital requirements.

    For example, lenders including Bank of America and Barclays expect to have to fund USD8.35 billion of debt for the leveraged buyout of Nielsen Holdings this week, Bloomberg reported last Tuesday.

    Representatives for Morgan Stanley, Bank of America, Barclays, MUFG and Twitter declined to comment.

    A representative for Musk did not immediately respond to a request for comment.

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