Wall Street banks, including Morgan Stanley, Barclays, and Bank of America, are preparing to sell billions of dollars in loans tied to Elon Musk’s acquisition of the social media platform X, formerly known as Twitter.
The banks aim to sell the debt at a discounted rate of 90 to 95 cents on the dollar, seeking to offload a burden that has persisted since Musk’s $44 billion purchase in 2022.
The planned sale comes as X faces significant financial challenges, with Musk admitting in a letter to employees earlier this month that the platform is “barely breaking even.”
In the letter, first reported by The Wall Street Journal, Musk highlighted stagnating user growth, underwhelming revenues, and ongoing financial difficulties. Despite these struggles, he underscored X’s influence, claiming the platform has played a key role in shaping “national discussions and outcomes” in recent months.
Mounting Financial Pressure
The banks’ move to sell part of the $13 billion debt package highlights the ongoing financial strain on both X and its creditors.
The loans were initially issued as part of the financing for Musk’s acquisition, but deteriorating market conditions and the platform’s unstable performance have complicated efforts to resell the debt.
Financial experts have described the X buyout as one of the most problematic leveraged acquisitions since the 2008 financial crisis. Banks have been forced to hold the debt on their balance sheets for over two years, locking up capital and exposing them to losses.
The anticipated discount of up to 10% reflects a cautious market outlook, as investors weigh the risks associated with the platform’s financial stability.
Advertising Challenges and Legal Disputes
X’s financial difficulties have been exacerbated by declining advertising revenue, traditionally a core source of income for the platform.
Following Musk’s acquisition, the platform saw an exodus of advertisers concerned about content moderation policies and brand safety.
While some advertisers have returned, others remain hesitant, prompting X to file lawsuits against companies like Unilever and Mars, alleging violations of U.S. antitrust laws for pulling their ads.
In an attempt to diversify revenue streams, X has pivoted toward a subscription-based model, introducing features such as premium accounts and paid content. However, these measures have yet to offset the decline in advertising revenue, leaving the company in a precarious financial position.
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Broader Market Implications
The planned debt sale represents a pivotal step for Wall Street banks to minimise their losses and free up capital tied to the X deal.
For potential investors, it presents an opportunity to acquire discounted high-yield debt, but the investment hinges on confidence in X’s ability to achieve sustainable profitability. Musk’s recent admission of X “barely breaking even” could complicate efforts to attract buyers, making the pricing and structure of the sale critical to its success.
Furthermore, X’s competitive position in the social media space remains uncertain. While Musk has promoted X as a leader in free speech, the platform has struggled to regain advertising revenue and user engagement levels seen prior to the acquisition.
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