Seven banks, led by Morgan Stanley, fully underwrote the debt portion of the financing, according to an April filing. As is usual in this type of contract, banks originally planned to sell most of that debt to institutional money managers before the Twitter deal closed, but they have always been on the hook for providing the funding if anything went wrong.
There are very few, if any, ways for banks to get out of providing such debt commitments after signing the contract. And most banks wouldn’t want to, even if it meant preventing a loss—backing out would reflect poorly on their investment banking business and could harm their ability to win new deals with companies and private equity firms in the future.
If the two sides agreed on a resolution, a deal could close quickly, as soon as a week, a person familiar said Wednesday. The deal might close so quickly that the banks would be expected to fund their debt commitments and likely syndicate the offering with investors after the deal closes, Bloomberg reported.
Even if the banks have time to sell the debt to money managers, credit market conditions have deteriorated since April. The Morgan Stanley-led group could struggle to find buyers for all the bonds and loans and would likely have to take losses on at least part of the financing package. But that is ultimately the banks’ problem, not Musk’s.
Morgan Stanley didn’t respond to a request for comment about the Musk deal.
Howard Fischer, partner at law firm Moses Singer, sees no legal basis for the banks to be able to get out of the Twitter debt commitments, he said in a phone interview. “Generally it would be hard to have deals go forward if they were contingent on bank financing and that bank financing was not rock solid,” he said.
Both sides agreed Wednesday to postpone Musk’s long-awaited deposition in the lawsuit, which is aimed at forcing him to consummate the transaction.