A consortium of banks that backed Elon Musk’s US$44bn takeover of Twitter Inc (NYSE:TWTR) are scratching their heads to avoid big write-offs due to the subsequent turmoil at the social media company, a report today suggested.
The billionaire Tesla Inc (NASDAQ:TSLA) chief executive borrowed US$13bn to buy Twitter and according to Reuters his bankers are trying to avoid any deal that might put an actual value on the debt and crystallise the drop in value.
Morgan Stanley (NYSE:MS) led the consortium that lent US$13bn to help Musk complete the Twitter takeover and reportedly is not going to sell on any of the loans due to just that possibility of a hefty write-down.
While the banks will have to take a provision to allow for the estimated value now (mark-to-market), it is up to them to decide by how much using their judgement and industry metrics.
According to Reuters, US$10bn of debt secured on Twitter’s assets might need to be written down by as much as 20%, but a 5-10% provision is more likely.
The unsecured US$3bn portion faces a potentially heavier write-down with indications recently the banks want some collateral for these loans going forward.
Musk said using more of his shares in Tesla to back this debt would be an "unwise move", though this week's reports of a possible IPO of Musk's space exploration business SpaceX presumably would offer another option.
Twitter has seen a stream of big-name advertisers pull their business since the takeover due to Musk’s tweets, a firing of staff and a relaxing of the rules over who can use the site.
Musk, who has already warned once that Twitter could go bust, has said he wants the social media group eventually to become a mainly subscription service with the importance of advertising revenue substantially reduced.