A group of Morgan Stanley-led banks sold $5.5 billion of debt associated with Elon Musk’s social media platform X, previously known as Twitter, following an unexpected surge in investor demand. The original plan was to sell approximately $3 billion worth of the loan but increased interest allowed for additional debt to be sold.
Morgan Stanley leads $5.5 billion debt sale for Musk’s X
The total amount sold marks a significant milestone in reducing the banks’ balance sheet exposure from the acquisition financing. The debt was priced at 97 cents on the dollar, which is a smaller discount than initially expected and helps ensure the banks avoid losses on this key component of X-related borrowings. Previously, a $1 billion portion of the term loan had been sold as a preliminary measure to gauge investor appetite.
Post-sale, parts of the debt were reportedly trading at 98 to 99 cents on the dollar. The loan matures in 2029 and includes a margin of 6.5 percentage points over the Secured Overnight Financing Rate, reflecting the associated risk of the debt. A spokesperson for Morgan Stanley declined to comment, and X did not immediately respond to requests for comments.
The banks collectively faced $13 billion in debt that was added to X’s balance sheet as part of Musk’s unexpected bid to take the platform private in 2022. While selling such debt shortly after acquisition is standard practice, investor interest waned as Musk’s operational changes led to significant layoffs and a sharp decline in revenue.
Investor confidence has rebounded, partly due to Musk’s proximity to former President Donald Trump and the political implications of this relationship. Musk leveraged his ownership of X to advocate for Trump’s reinstatement and has become a notable adviser to the former president. This connection has generated renewed interest from advertisers slowly returning to the platform.
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During recent discussions, banking professionals highlighted X’s stake in Musk’s artificial intelligence startup xAI as a potential asset that could enhance the value for creditors. When the acquisition concluded, banks found themselves responsible for three tranches of debt, including a $6.5 billion term loan aimed for resale to investors, as well as other secured and unsecured junk bonds, which remain challenging to sell at face value.
Since 2022, banks involved have accrued approximately $3 billion in interest revenue from the X debt, according to Bloomberg. To stimulate further investor interest, Morgan Stanley disclosed new financial data for X and orchestrated a meeting with leading company executives.
The Wall Street Journal reported that the $5.5 billion sale exceeded initial estimates set around a $3 billion sale at 95 cents on the dollar, with the floating-rate debts now carrying an interest rate near 11%. Advertisers are beginning to regain confidence, with major companies like Amazon increasing their spending on the platform. Apple has also reopened discussions regarding potential advertising after initially pulling its budget.
A recent presentation by Morgan Stanley bankers and X’s CEO Linda Yaccarino showcased financial improvements. According to updated projections, X anticipates adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of approximately $1.2 billion for 2024, including an estimated $400 million EBITDA on $710 million in revenue for the final quarter of the year.
Musk expressed mixed sentiments about company performance in an email to staff, admitting challenges such as stagnant user growth and unimpressive revenue figures while acknowledging the platform’s increasing influence. The future financial trajectory of X remains under scrutiny amid mixed signals from the advertising sector and ongoing operational adjustments.
Meanwhile, the banks involved have now effectively unloaded $5.5 billion of the debt tied to Musk’s acquisition of X, but still retain $6 billion of debt that is viewed as riskier than the loans recently sold. The successful transaction represents a keen interest shift among investors in Musk’s ventures post-acquisition.
Featured image credit: Kerem Gülen/Midjourney
