By Shankar Ramakrishnan and Echo Wang
(Reuters) – Elon Musk’s political ascendancy has some Wall Avenue banks hoping they could quickly have the ability to offload $13 billion of debt that backed the billionaire’s buy of the social media platform X, three banking sources stated.
A number of the lenders within the consortium, which included Morgan Stanley (NYSE:) and Financial institution of America, assume Musk’s emergence as an in depth aide to President-elect Donald Trump might increase the prospects of X, beforehand often known as Twitter, the sources stated. If that had been to occur, it might enable them to promote the debt with out having to take a large loss on the deal, the sources stated.
Musk, X, Morgan Stanley and Financial institution of America didn’t instantly reply to a request for remark.
sometimes promote such loans to buyers quickly after the deal is finished, however within the case of X, which Musk purchased for $44 billion in 2022, they’ve been caught holding the debt. Musk’s sweeping modifications to the platform, together with shedding many individuals who labored to average content material, and one in every of his posts on X scared away advertisers and hit revenues. That decreased the worth of the debt, as the danger of default elevated.
In latest months, one of many sources stated, some banks anticipated X had seen elevated site visitors as customers flocked to the platform round huge occasions just like the U.S. elections. President-elect Donald Trump, whose account on the platform was restored by Musk after the earlier administration banned him in January 2021, has been commonly posting on it.
The banking sources stated they needed to see whether or not that and a sturdy U.S. economic system would translate to elevated revenues for the platform.
Analysts have stated Musk’s ties with Trump — who put him in control of a brand new authorities division on effectivity — may gain advantage the entrepreneur’s numerous enterprise ventures, which vary from Tesla (NASDAQ:) electrical autos to SpaceX rockets. Tesla’s market worth surpassed $1 trillion for the primary time in two years within the days after the election outcomes.
The Trump marketing campaign didn’t instantly reply to a request for remark.
DEBT VALUE
It’s unclear to what extent Musk’s shut connection within the new administration might assist revive X’s enterprise. One of many sources stated it might additionally additional divide its consumer base. Newer platforms like Bluesky and Meta (NASDAQ:)’s Threads have been benefiting from consumer exodus from X because the election.
U.S. internet site visitors on X reached its highest level this 12 months on election day with 42.3 million visits, which climbed one other 10% to 46.5 million visits the day after the election, in line with information from internet analytics firm Similarweb (NYSE:). However by the weekend, X’s internet site visitors tapered off to extra regular ranges, Similarweb stated. The info agency stated 115,000 internet customers within the U.S. deactivated their X account on Nov. 6, larger than some other day since Musk took over the platform.
The social media firm is predicted to report its newest funds to the lending consortium within the weeks after the quarter ends subsequent month, the sources stated. The banks might then resolve whether or not they need to proceed holding on the debt or look to interact buyers on it, the sources stated.
Different banks within the consortium embody Barclays (LON:), Mitsubishi UFJ (NYSE:), BNP Paribas (OTC:), Mizuho (NYSE:) and Societe Generale (OTC:).
BNP and SocGen declined to remark. The opposite banks didn’t instantly reply to a request for remark.
Sources have stated banks have marked down the worth of the debt to totally different levels on their books, relying on their outlook on it.
One of many lenders is marking potential losses on the mortgage weekly, and had already put aside reserves to totally cowl them, in line with a supply aware of the state of affairs.
Makes an attempt to promote the debt in late 2022 attracted bids which might have seen banks taking as a lot as a 20% loss on the face worth of the debt, sources on the time stated.
As a substitute of crystallizing these losses, banks have been holding on to the paper, the sources stated. X has stored up with curiosity funds on the bonds, they stated.
