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Two years ago, Elon Musk came in and spent $44 billion on a social media network that he quickly managed to destroy, turning it into the actual nightmare hellscape that we always said it was (little did we know how much worse it could get). Now, not only is it a useless, toxic space, but the company’s value has dropped precipitously. Advertising revenue is down something like 70 percent, and the company’s actual value has been cut by more than half (he bought it at $44 billion, and the company itself said its value was at $19 billion last year).
However, the deal is also wreaking havoc on the banking system, according to the Wall Street Journal, which calls the Twitter deal the “worst buyout for banks since the financial crisis.”
How? Here’s the short version: Elon Musk bought Twitter for $44 billion. To help finance it, he borrowed $13 billion from seven banks, including Morgan Stanley and Bank of America. Normally, when banks lend money for big deals like this, they quickly sell the debt to other investors to get it off their books and make money off the transaction fees. However, in this case, the banks haven’t been able to sell the debt because Twitter’s financial performance has been disastrous. This means the loans are still on the banks’ balance sheets, which is called being “hung.” This situation has become the worst “hung” deal for banks since the 2008-2009 financial crisis. It’s been almost two years, and the banks still can’t sell the debt without taking major losses, which is causing problems for the banks. Not only has it reduced profits because of write-downs, but it’s made it more difficult for the banks to make loans, it’s lowered the ranking of these banks, and in some cases, even the bankers are taking hits against their salary (I know, boo hoo!).
The banks are in a bind because they want to maintain good terms with Musk — because he also owns SpaceX and Tesla — but they are getting their asses kicked by this deal and there’s nothing they can really do about it. Musk, meanwhile, has to pay $1.5 billion in interest payments each year, and eventually something has to give. My guess is that he’s rooting for Trump for various political reasons, but also because he thinks that the chaos of a Trump presidency might be good for Twitter. A Kamala Harris presidency would probably mean less chaos, less disorder, which will probably mean the end of Twitter. And that, alone, would be an achievement for Harris.
In lieu of a header image of Elon Musk, we have again used a photo of Lee Pace for aesthetic reasons, and with apologies to Lee Pace.
Source: WSJ