Potential buyers offer lower prices for Musk’s Twitter debt

Today we wrap up week 2 of the world’s richest man doing what he does on Twitter. And while you might already be aware of all this rollercoaster ride of mass layoffs, $8-a-month checkmarks and all that, there’s a whole other part of the story that doesn’t appeal as much. Warning.

Musk paid $44 billion to buy Twitter. But it wasn’t all his money. He borrowed $13 billion to pay the bill, and Bloomberg News reports that the banks that lent him that money are now trying to offload those loans. They reportedly received offers for as little as 60 cents on the dollar.

It is quite common for a bank to sell loans it has made to help buy a business. In fact, that’s often the point, said Drew Pascarella, associate professor of finance at Cornell University.

“Banks usually make loans thinking they’ll end up selling at least some of those loans to other investors,” he said.

Pascarella said that at this point the banks have already collected their fees. And they don’t want to keep too much of their money tied to one company.

In addition, many other investors may be interested in taking out these loans.

“Hedge funds and private investors who seek to generate a return for their investors or for themselves through the return on these loans,” Pascarella said, for example.

But what is unusual about this deal are the significantly lower prices offered by potential buyers.

Sixty cents on the dollar? That’s not the norm, said Matteo Arena, a finance professor at Marquette University.

“Usually you see discounts, you know, 90 cents on the dollar, maybe 85 cents on the dollar,” he said.

Arena said those potential buyers — hedge funds and private investors — were worried. What if Twitter’s ad revenue runs out? What if Twitter goes bankrupt?

“If the company goes bankrupt, how much money we lend will we be able to recover in court? Arena said.

These kinds of questions are on the table because of what happened on Twitter recently.

“You don’t typically have a company that lays off half its employees in a week,” said Afra Afsharipour, a law professor at the University of California, Davis.

She said most people who borrow to buy businesses typically take some time after an acquisition to work with their lenders and figure out how they want to restructure the business “in the hope that they turn the business around and ‘they sell it to someone else, or they make it public,’ Afsharipour explained.

Either way, she said there are likely plenty of investors out there who would be willing to buy those loans — if they believe in the future of Twitter or if that debt is super cheap.

Clarification (November 11, 2022): This story has been updated to clarify that some banks have received offers of 60 cents on the dollar from investors for some Twitter debt, according to Bloomberg.

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