'The Musk Effect'... Banks Successfully Sell X Loan Portfolio

All Remaining Acquisition Loans Sold Amid Surging Investment Demand

Bloomberg reported on the 5th (local time) that banks including Morgan Stanley sold $5.5 billion (about 7.95 trillion won) of loans they provided to the social networking service X (formerly Twitter) to investors such as Pimco and Citadel.

AP Yonhap News

The banks initially planned to sell $3 billion, but as investment demand surged due to expectations surrounding Elon Musk, who rose to prominence during the Donald Trump administration, they were able to sell the entire outstanding loan balance to X.

In 2022, Musk acquired Twitter for $44 billion (about 63 trillion won) and received $13 billion (about 18.8 trillion won) in acquisition financing from major investment banks including Morgan Stanley.

Typically, banks sell acquisition financing immediately on the market. However, after Musk took over X, the platform experienced a sharp decline in revenue due to a mass exodus of advertisers, and investor sentiment froze, leading to a failure to sell the acquisition financing for X. As a result, the acquisition financing for X remained an asset with potentially huge losses for the banks. The interest rate on this variable-rate loan is 11%, which is higher than the riskiest loans on Wall Street. This indicates it is a very risky loan asset.

The banks sold the $5.5 billion loan at 97 cents on the dollar this time. This applied a lower discount rate than initially expected, and sources said the banks handled the largest portion of the X acquisition financing almost without loss.

Earlier, to gauge investment demand, the banks first sold $1 billion of loans to X last month. According to the banks that sold loans this time, advertisers are reportedly returning to X.

X informed investors that its EBITDA before depreciation last year was $1.25 billion, and revenue was $2.7 billion. This is an improvement in profitability compared to the year before the acquisition, 2021, when EBITDA was $682 million and revenue was $5 billion.