X, formerly known as Twitter, looks like a pretty bad investment right about now.
As readers might recall, Elon Musk borrowed $13 billion from Morgan Stanley, Bank of America and five other major banks to help finance its $44 billion acquisition. According to the WSJ, the deal has since turned into the worst merger-finance deal for banks since the 2008-2009 financial crisis.
Why? When banks lend money for takeovers, they usually sell that debt on to others, earning fees on the transaction. That hasn’t been possible with X because of its weak financials, so the loans have weighed the banks down, becoming, in industry parlance, “hung deals.”
The WSJ notes that the banks agreed to underwrite these loans “largely because the allure of banking the world’s richest person was too attractive to pass up.” Now, it looks like a costly mistake unless they can extract interest payments from X, plus a repayment of principal once the loans mature.
