Elon Musk, a well-known entrepreneur and innovator, has recently risen to political prominence. This shift has led some Wall Street financial institutions to believe they might be able to relieve themselves of $13 billion in debt. This debt was used to support Musk’s acquisition of a social media platform known as X, according to three banking insiders.
Several financiers, including Morgan Stanley and Bank of America, who are part of the consortium that backed Musk’s purchase, believe that Musk’s proximity to President-elect Donald Trump could improve the fortunes of X, formerly Twitter. This could potentially allow the banks to divest their debt without incurring significant losses, the insiders revealed.
No comments were received from Musk, X, Morgan Stanley, and Bank of America when approached. Loans of this nature are usually sold to investors shortly after the deal is closed. However, in the case of X, which Musk purchased for $44 billion in 2022, the banks have ended up holding the debt.
Musk made radical changes to X, including layoffs and a controversial post that scared off advertisers, which impacted revenues and decreased the value of the debt. However, recent months have seen a resurgence in X’s usage during major events like the U.S. elections, particularly since President-elect Donald Trump resumed posting after Musk restored his previously banned account.
The banks are now keen to see if this increased user activity and a strong U.S. economy could lead to higher revenues for X. Analysts also suggest Musk’s close ties with Trump could positively impact his various other businesses, such as Tesla and SpaceX.
However, it remains uncertain how much Musk’s political connections can help rejuvenate X’s business. Some believe it could further polarize its user base. Other platforms like Bluesky and Meta’s Threads have been gaining users since the election.
X’s web traffic peaked on election day, then dropped back to normal levels, according to web analytics company Similarweb. The company also reported an unusual number of account deactivations on Nov. 6, the highest since Musk took over.
The social media company is expected to disclose its latest financials to the lending consortium after the close of the next quarter. The banks will then decide whether to continue carrying the debt or seek investors.
Other banks involved in the consortium include Barclays, Mitsubishi UFJ, BNP Paribas, Mizuho, and Societe Generale. BNP and SocGen declined to comment, while the others didn’t respond immediately.
Sources say the banks have adjusted the debt value on their books based on their outlook. One lender is reported to be tracking potential loan losses weekly and has already allocated reserves to fully cover them.
Efforts to sell the debt in late 2022 attracted bids that would have resulted in banks taking up to a 20% loss on the face value of the debt. As a result, banks have chosen to retain the debt. According to sources, X has maintained regular interest payments on the bonds.
