Elon Musk: Musk’s political ascendancy stirs hopes of redemption for X banks

Elon Musk’s political ascendancy has some Wall Road banks hoping they might quickly be capable of offload $13 billion of debt that backed the billionaire’s buy of the social media platform X, three banking sources mentioned.

Among the lenders within the consortium, which included Morgan Stanley and Financial institution of America, assume Musk’s emergence as an in depth aide to Republican President-elect Donald Trump might increase the prospects of X, beforehand often called Twitter, the sources mentioned. If that had been to occur, it will permit them to promote the debt with out having to take a large loss on the deal, the sources mentioned.

Musk, X, Morgan Stanley and Financial institution of America didn’t instantly reply to a request for remark.

Banks usually promote such loans to buyers quickly after the deal is finished, however within the case of X, which Musk purchased for $44 billion in 2022, they’ve been caught holding the debt. Musk’s sweeping adjustments to the platform, together with shedding many individuals who labored to reasonable content material, and considered one of his posts on X, scared away advertisers and hit revenues. That lowered the worth of the debt, as the chance of default elevated.

In current months, one of many sources mentioned, some banks anticipated X had seen elevated visitors as customers flocked to the platform round massive occasions just like the U.S. elections. Trump, whose account on the platform was restored by Musk after the earlier administration banned him in January 2021, has been usually posting on it.

The banking sources mentioned they needed to see whether or not that and a sturdy U.S. economic system would translate to elevated revenues for the platform.

Analysts have mentioned Musk’s ties with Trump – who put him accountable for a brand new authorities division on effectivity – may gain advantage the entrepreneur’s varied enterprise ventures, which vary from Tesla electrical autos to SpaceX rockets. Tesla’s market worth surpassed $1 trillion for the primary time in two years within the days after the election outcomes. The Trump marketing campaign didn’t instantly reply to a request for remark.

Debt worth

It’s unclear to what extent Musk’s shut connection within the new administration might assist revive X’s enterprise. One of many sources mentioned it might additionally additional divide its consumer base. Newer platforms like Bluesky and Meta’s Threads have been benefiting from a consumer exodus from X because the election.

U.S. internet visitors on X reached its highest level this 12 months on election day with 42.3 million visits, which climbed one other 10% to 46.5 million visits the day after the election, in accordance with knowledge from internet analytics firm Similarweb. However by the weekend, X’s internet visitors tapered off to extra regular ranges, Similarweb mentioned. The info agency mentioned 115,000 internet customers within the U.S. deactivated their X account on Nov. 6, larger than every other day since Musk took over the platform.

The social media firm is anticipated to report its newest funds to the lending consortium within the weeks after the quarter ends subsequent month, the sources mentioned. The banks might then determine whether or not they need to proceed holding onto the debt or look to have interaction buyers on it, the sources mentioned.

Different banks within the consortium embody Barclays, Mitsubishi UFJ, BNP Paribas, Mizuho and Societe Generale.

BNP, SocGen, and Barclays declined to remark. The opposite banks didn’t instantly reply to a request for remark.

Sources have mentioned banks have marked down the worth of the debt to totally different levels on their books, relying on their outlook on it.

One of many lenders is marking potential losses on the mortgage weekly, and had already put aside reserves to totally cowl them, in accordance with a supply acquainted with the scenario.

Makes an attempt to promote the debt in late 2022 attracted bids which might have seen banks taking as a lot as a 20% loss on the face worth of the debt, sources on the time mentioned.

As a substitute of crystallizing these losses, banks have been holding on to the paper, the sources mentioned. X has saved up with curiosity funds on the bonds, they mentioned.