Elon Musk’s Twitter deal could be worst bank leveraged buyout deal since Lehman, raising risks for Tesla

Elon Musk’s purchase of Twitter could go down as the worst leveraged buyout (LBO) for banks since the 2008 global financial crisis, the latest worrying sign that the deal is proving costly for Tesla ( TSLA ) shareholders.

While more than half of the $44 billion price tag came from Elon Musk, about $13 billion had to be raised from a consortium of lenders to keep from overwhelming Tesla shareholders after the entrepreneur liquidated billions of dollars in Tesla stock.

Typically, Wall Street banks will secure debt financing from major deals, then package and sell the debt to professional investors, such as hedge funds and pension plans, within weeks or sometimes months. But the inauspicious timing of Twitter’s October 2022 deal, struck just as borrowing costs began to rise, combined with the social media company’s dire financial situation, has whetted any appetite from money managers.

After nearly two years, investment banks have been unable to unload debt, draining precious capital and limiting their ability to originate and finance more deals. In fact, no LBO debt has been on the balance sheet since the bankruptcy of Lehman Brothers, according to new information from PitchBook LCD cited by Wall Street Journal Tuesday.

The previous record was 13 months, resulting from the 2007 acquisition of auto parts group Tower Automotive by private equity firm Cerberus at the height of the subprime bubble.

The data gives no indication of whether X has breached its loan covenants, usually the first sign of distress, and the company did not respond to a wealth request for comment.

But reports in recent months have indicated that Musk has repeatedly tried to assuage bankers’ concerns, even as he sought less onerous terms.

Unsustainable debt

When the deal was made, Twitter was expected to incur more than $1 billion in annual interest, before capital expenditures and operating expenses. That’s a problem, given that revenue in its core U.S. market could reach about $600 million this year, and even before Musk’s acquisition, Twitter struggled to monetize its user base.

wealth reported in October that Musk held repeated talks with bankers to discuss restructuring the debt to achieve more financially sustainable terms.

right Wall Street Journalhowever, these talks have reached an impasse. While it remains unclear whether X is currently paying off his debt, indications from at least one bank are that this is affecting the lenders’ bottom line.

Due mainly to Twitter’s LBO debt, Barclays’ senior M&A team was told last year that their annual compensation would shrink by 40% from the previous year. The cut was so severe that nearly a quarter of the bank’s more than 200 chief executives resigned after collecting it.

The story continues

Musk may still be pulling a rabbit out of a hat, but X’s financial woes are raising alarm bells among Tesla bulls. Last week, Halter Ferguson Financial warned that Musk could be forced to sell $1 billion to $2 billion of Tesla stock to plug financial cracks emerging at Twitter, now X, with new capital infusions own that absorb the losses.

wealth has reached out to Barclays and Tesla for further comment.

This story was originally featured on Fortune.com