Elon Musk’s Twitter Bid Puts Pressure on the Banks Backing Him

Typically, when investment banks fund a leveraged buyout, they try to offload that debt to outside investors, such as hedge funds and other big institutions. The banks make money from the fees they charge to arrange these deals, and they sell the debt to reduce their risks in case borrowers cannot repay what is owed.

It has become significantly harder to sell that debt in recent months, which presents a challenge to the banks. If they try to sell the debt now, they might be forced to do so at a large loss.

Morgan Stanley, Bank of America and Barclays all declined to comment on Wednesday.

Twitter will most likely try to make sure Mr. Musk cannot use financing problems to back out of the deal again, legal experts said. Twitter sued Mr. Musk in an effort to force him to go through with the initial agreement, and a trial is still scheduled to start in Delaware Chancery Court in two weeks. The company could ask Kathaleen McCormick, the judge overseeing the case, to have the banks put in writing that they remain committed to funding the bid.

Still, the banks could argue that Mr. Musk’s antics over the past few months have materially damaged the business. And Mr. Musk could opt not to sign a requisite letter certifying that Twitter is solvent.

Legal experts said the judge would most likely look unfavorably upon any efforts that could be seen as Mr. Musk sabotaging his own financing. She could also force Mr. Musk to sue the banks under the New York law that governs them, demanding that they follow through on their financing commitments.

Article source: https://www.nytimes.com/2022/10/05/business/elon-musk-twitter-deal.html