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3 Bank ‘Sell-down’ Pact at Elon Musk’s X?

Funding | Oct 9, 2023

Unsplash Alice Pasqual Until debt tear us apart - 3 Bank 'Sell-down' Pact at Elon Musk's X?

Image: Unsplash/Alice Pasqual

3 of the seven banks that funded X's acquisition (formally Twitter) - Morgan Stanley, Barclays, and Bank of America, which collectively provided almost 70% of the financing, have reportedly formed a strategic alliance to safeguard their investments amidst the financial chaos.

Elon Musk's acquisition of Twitter, valued at $44 billion, has been a subject of intense scrutiny and speculation, particularly due to the financial turbulence experienced by X, Musk's financial entity.

As reported by Fortune, banks may have formed an alliance, known as a "sell-down letter," is designed to prevent the banks from breaking ranks and is set to expire on January 15th. The letter typically mandates that if one bank receives an offer for its loans, it cannot accept without offering the other members the same deal on a pro rata basis, thereby preventing a “divide and conquer” approach by potential buyers.

Lack of Financial Transparency and Musk's Potential Power Play

The banks involved in the deal have expressed significant frustration due to the lack of transparent financial information provided by X. The scarcity of data has hindered the lenders from presenting a full package to potential purchasers, thereby complicating the process of offloading the debt.

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The banks are optimistic that the appointment of a new CEO, Linda Yaccarino, and the potential hiring of a CFO will enhance financial transparency and provide a clearer view of the books in the future.

Despite the financial turmoil, Elon Musk is speculated to be in a position where he could potentially purchase a substantial portion of the debt that is currently plaguing X, possibly at a significantly reduced rate.

Alternatively, he might negotiate a deal where the banks write off some of the loans, which would enhance X’s financial standing and enable them to safely syndicate the remaining debt. The lack of information available to the lenders makes it difficult for them to sell to other parties, thereby placing Musk in a potentially advantageous position.

FAQ

What is the "sell-down letter" agreement among the banks?

The "sell-down letter" is an agreement among Morgan Stanley, Barclays, and Bank of America, which prevents them from individually accepting offers for their loans without providing the other banks the opportunity to access the same deal, thereby avoiding a competitive undercutting scenario.

How has the lack of financial information from X impacted the banks?

The banks have expressed frustration due to the insufficient flow of financial information from X, which has prevented them from presenting a comprehensive package to potential purchasers of the debt, thereby complicating the financial resolution of the situation.

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How might Elon Musk utilize his position to navigate the financial challenges faced by X?

Musk could potentially leverage the situation by purchasing a significant portion of X’s debt at a reduced rate or negotiate a solution where the banks write off some of the loans, thereby improving X’s financial standing and facilitating the syndication of the remaining debt.

What challenges are the banks facing in selling the debt to other investors?

The banks are unable to sell the debt to investors as initially planned due to the rapid deterioration of X’s finances since Musk’s takeover. They are now left holding all of it on their balance sheets, and the only way to unload the loans might be by accepting deep discounts from potential buyers, such as hedge funds.


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