The $13 billion that Elon Musk borrowed to buy Twitter has turned into the worst merger-finance deal for banks since the 2008-09 financial crisis.
The seven banks involved in the deal, including Morgan Stanley and Bank of America, lent the money to the billionaire’s holding company to take the social-media platform, now named X, private in October 2022. Banks that provide loans for takeovers generally sell the debt quickly to other investors to get it off their balance sheets, making money on fees.
The banks haven’t been able to offload the debt without incurring major losses—largely because of X’s weak financial performance—leaving the loans stuck on their balance sheets, or “hung” in industry jargon. The resulting write-downs have hobbled the banks’ loan books and, in one case, was a factor that crimped compensation for a bank’s merger department, according to people involved with the deal.
The value of the loans to Musk quickly soured after the $44 billion acquisition was completed. But new analysis shows how their persistent underperformance has put the deal in historic territory.
According to data from PitchBook LCD, the Twitter loans have been hung longer than every similar unsold deal since the 2008-09 financial crisis for which the research firm has complete records. There were many more hung deals back then, but banks in that period typically were still able to sell or write off most of their hung debt within roughly a year after they issued the loans. One hung deal—a $20 billion all-debt acquisition in 2007—was bigger than Twitter but wound up in bankruptcy about 12 months after banks wrote the check.
Steven Kaplan, a professor of finance at the University of Chicago who has tracked such deals since the 1980s, said Twitter isn’t only the biggest hung deal by dollar amount since the 2008 financial crisis but one of the biggest of all time.
“The loans have weighed on the banks for much longer than other hung deals we’ve seen,” he said.
The banks that agreed to underwrite a deal that even Musk said was overvalued did so largely because the allure of banking the world’s richest person was too attractive to pass up, according to people involved in the deal. Musk and other investors ponied up around $30 billion to buy the company, giving the banks some cushion in case things were to go wrong.
The banks—which also include Barclays, Mitsubishi UFJ Financial Group, BNP Paribas, Mizuho and Société Générale—have been able to collect hefty interest payments from the X loans. They are generally for seven to eight years and carry rates several percentage points above the benchmark for investment-grade companies. And the banks could still ultimately be made whole if X is able to cover its interest obligations and repay the principal when the loans mature.
“At some price, they could sell it at a loss, but with Musk they could end up receiving 100 cents on the dollar, if things pan out,” said Kaplan.
But nearly two years after Musk’s acquisition, X’s business is still struggling to climb out of the deep hole it fell into under his ownership—the company last year said its value had fallen by more than half, to around $19 billion.
While data indicate that use of the app rose amid the explosion of political news in recent weeks, there isn’t evidence that that is translating to a meaningful recovery in the advertising revenue that long sustained the revenues of the company, which pre-Musk struggled to maintain profits. Musk has gone from telling advertisers who fled the platform to “go f— yourself” to suing them and a trade group this month, claiming they illegally conspired to boycott X. The group has said it plans to rebut the claims in court.
Servicing the loans isn’t helping X’s financial health. Even before rates stopped rising, Musk said its annual interest payments total around $1.5 billion.
With the two-year mark on the Twitter loans rapidly approaching, the banks haven’t made moves to sell them, even after some banks have marked the value of the loans down by hundreds of millions of dollars.
Paper losses on the debt have dented bank profits, and holding high-risk loans directly on the balance sheet attracts more scrutiny from regulators. Because of Twitter and other hung deals, some of the banks also scaled back how much they lent in providing capital for merger-finance deals, according to some of the people.
The Twitter loans, along with other hung deals, helped knock some banks’ standing in the investment banking league tables, a closely watched ranking of their market share. The rankings are a major part of how banks market themselves to customers and can impact compensation.
Bank of America and Morgan Stanley commanded the top two spots in the U.S. leveraged-finance investment banking league tables in 2021 and 2022 during some quarters before Musk bought Twitter, according to data from Dealogic. In 2023 and 2024, JPMorgan and Goldman Sachs—which didn’t finance the Twitter deal—have held the top spots.
The hung loans also have cut into some investment bankers’ annual pay.
Barclays’s top investment bankers on the mergers and acquisitions team were told at a New York dinner early last year that compensation for everyone in the room would be cut by at least 40% from the prior year. The bank had several hung deals hurting its performance but X was by far the largest, according to people familiar with the situation.
Once bankers were paid their bonuses for the year, about 50 of Barclays’s more than 200 managing directors left the firm, according to the people.
The banks early this year discussed a possible plan to restructure the deal where Musk could pay down some of X’s outstanding debt and the banks would agree to lower interest payments, people familiar with the matter said. X didn’t follow through on the plan, they said.
The deal presents a Catch-22 for the banks. On one hand, they are eager to be well-positioned to work with Musk and his six companies that range from electric-vehicle maker Tesla to Neuralink and xAI. Many view a possible initial public offering of Musk’s rocket company SpaceX or his Starlink satellite business as a fee-generating event that they don’t want to miss out on.
But in the interim, some of Musk’s public comments and tweets have made a sale of the debt more difficult for them given the resulting pressures on the business.
At MUFG, Musk’s rant against advertisers in the fall prompted anxiety among senior U.S. executives at the bank, according to people familiar with their thinking. Not long after Musk’s comments, they downgraded the bank’s internal credit rating of the loan—a sign that they don’t think it will be easy to get their money back—and kicked the debt into its special situations and workouts group, which typically handles the debts of bankrupt and financially distressed companies.
A spokesman for the bank said “MUFG has had several constructive conversations with Mr. Musk and his leadership team. We anticipate reaching a positive outcome regarding repayment.”
Justin Baer and Laura Cooper contributed to this article.
