Musk's political ascendancy stirs hopes of redemption for X banks

By Shankar Ramakrishnan and Echo Wang

(Reuters) - Elon Musk's political ascendancy has some Wall Street banks hoping they may soon be able to offload $13 billion of debt that backed the billionaire's purchase of the social media platform X, three banking sources said.

Some of the lenders in the consortium, which included Morgan Stanley (NYSE:MS ) and Bank of America, think Musk’s emergence as a close aide to President-elect Donald Trump could boost the prospects of X, previously known as Twitter, the sources said. If that were to happen, it would allow them to sell the debt without having to take a massive loss on the deal, the sources said. 

Musk, X, Morgan Stanley and Bank of America did not immediately respond to a request for comment.

Banks typically sell such loans to investors soon after the deal is done, but in the case of X, which Musk bought for $44 billion in 2022, they have been stuck holding the debt. Musk’s sweeping changes to the platform, including laying off many people who worked to moderate content, and one of his posts on X scared away advertisers and hit revenues. That reduced the value of the debt, as the risk of default increased.

In recent months, one of the sources said, some banks expected X had seen increased traffic as users flocked to the platform around big events like the U.S. elections. President-elect Donald Trump, whose account on the platform was restored by Musk after the previous management banned him in January 2021, has been regularly posting on it. 

The banking sources said they wanted to see whether that and a robust U.S. economy would translate to increased revenues for the platform. 

Analysts have said Musk's ties with Trump -- who put him in charge of a new government department on efficiency -- could benefit the entrepreneur's various business ventures, which range from Tesla (NASDAQ:TSLA ) electric vehicles to SpaceX rockets. Tesla's market value surpassed $1 trillion for the first time in two years in the days after the election results.

The Trump campaign did not immediately respond to a request for comment.

DEBT VALUE

It is unclear to what extent Musk's close connection in the new administration could help revive X's business. One of the sources said it could also further divide its user base. Newer platforms like Bluesky and Meta (NASDAQ:META )'s Threads have been benefiting from user exodus from X since the election.

U.S. web traffic on X reached its highest point this year on election day with 42.3 million visits, which climbed another 10% to 46.5 million visits the day after the election, according to data from web analytics company Similarweb (NYSE:SMWB ). But by the weekend, X's web traffic tapered off to more normal levels, Similarweb said. The data firm said 115,000 web users in the U.S. deactivated their X account on Nov. 6, higher than any other day since Musk took over the platform.

The social media company is expected to report its latest finances to the lending consortium in the weeks after the quarter ends next month, the sources said. The banks could then decide whether they should continue holding on the debt or look to engage investors on it, the sources said.

Other banks in the consortium include Barclays (LON:BARC ), Mitsubishi UFJ (NYSE:MUFG ), BNP Paribas (OTC:BNPQY ), Mizuho (NYSE:MFG ) and Societe Generale (OTC:SCGLY ). 

BNP and SocGen declined to comment. The other banks did not immediately respond to a request for comment.

Sources have said banks have marked down the value of the debt to different degrees on their books, depending on their outlook on it. 

One of the lenders is marking potential losses on the loan weekly, and had already set aside reserves to fully cover them, according to a source familiar with the situation.



Attempts to sell the debt in late 2022 attracted bids which would have seen banks taking as much as a 20% loss on the face value of the debt, sources at the time said. 

Instead of crystallizing those losses, banks have been holding on to the paper, the sources said. X has kept up with interest payments on the bonds, they said. 

Source: Investing.com