A Billionaire Bromance Turns the Tables on Morgan Stanley’s Debt Woes
Just a few short months ago, Morgan Stanley was struggling to offload billions of dollars in debt tied to Elon Musk’s controversial 2022 buyout of Twitter Inc., now rebranded as X. However, a presidential election and a blossoming friendship between Musk and President Donald Trump have dramatically shifted the landscape.
From Liability to Asset
Morgan Stanley, along with other lenders, is now marketing a $3 billion offering of X’s debt, and investors are taking notice. The bank’s pitch highlights X’s financials, which show an adjusted 2024 profit of roughly $1.2 billion, according to insiders. The company’s revenue has taken a hit since the buyout, but Musk’s aggressive cost-cutting measures have helped the business chart a turnaround.
A Rebound in Sight
X’s financials also reflect a boost from election-related buzz, with the company posting $400 million in earnings before interest, taxes, depreciation, and amortization (Ebitda) on $710 million of revenue in the last three months of the year. This marks a significant improvement over the two preceding quarters. As a result, investors are gaining confidence in the company’s prospects, and the debt is now being shopped at or above 95 cents on the dollar, a significant increase from the 60 cents on the dollar it was previously valued at.
The xAI Advantage
One of the key selling points for investors is X’s $6 billion stake in Musk’s artificial intelligence project, xAI. This not only provides potential for growth but also offers debtholders a claim on the xAI stake if things go awry.
A Lofty Yield
The $3 billion of debt on sale now matures in 2029 and will pay interest of 6.5 percentage points above the benchmark Secured Overnight Financing Rate, amounting to a lofty yield of roughly 12%. This reflects the risk of buying debt from a company that is not currently assessed by credit ratings agencies and whose leverage ratio is roughly 10 times earnings.
A Profitable Resolution
The current marketing efforts are likely just the beginning as banks seek to offload X exposure. While it’s uncertain whether they will be able to sell riskier portions of the debt at face value, the banks will almost certainly earn a profit on the X transaction, according to experts. With fees, interest income, and proposed valuations for loan sales, the banks are poised to recover more than 100 cents on the dollar.
Leave a Reply