Elon Musk proves the classic philosophy: If you owe a little, you fear the bank, but when you owe a lot of money, the bank must fear you.

Elon Musk – the world’s richest man – promised banks that they wouldn’t take a hit after lending him $13 billion to buy Twitter in 2022. Now he’s almost made good on that promise, with President Donald Trump’s victory helping salvage the debt-laden deal.

Last month, seven banks completed the sale of the remaining portion of the loan that financed Musk’s $44 billion Twitter acquisition, marking a dramatic turnaround for debt that was once considered “toxic.” Lenders—including Morgan Stanley and Bank of America—faced a stark choice: Sell off the loans at deep discounts and take a huge loss, or trust Musk’s privacy promises.

SWEET FRUIT

The decision to keep the debt began to pay off in November, when Trump won the US presidential election. Musk – one of the president’s closest allies – quickly became a familiar face in the White House, a move that has significantly increased his influence and had a profound impact on Musk’s business empire.

When the banks sold the rest of their loans in late April, Company X (formerly Twitter) made an unusual move: It offset some of the losses the banks would have borne, according to people familiar with the matter.

Specifically, insiders said, the $1.2 billion loan was sold at a slight discount, about 98 cents per dollar. And X covered the remaining difference.

“It was a deal that made me want to do somersaults,” said one banker involved in the deal. “It was a gamble on the world’s richest man – and it paid off,” said another.

The information comes from more than a dozen interviews with people with direct knowledge of Musk’s financing of Twitter — one of the most complex debt deals Wall Street has faced since the 2008 financial crisis.

Morgan Stanley led a consortium of six other banks in the race to provide financing for Musk in April 2022. Banks were vying for a spot to strengthen their relationship with the billionaire.

The consortium of Bank of America, Barclays and MUFG had just days to complete due diligence and sign the deal — when Musk pushed ahead with the acquisition.

But just weeks later, as Musk tried to back out of the deal, the truth began to emerge: The banks would have to put up about $12.7 billion of their own money to finance the loan, rather than sell the debt to major investors as originally planned. In Wall Street parlance, they were “hung” — that is, stuck with the debt they couldn’t sell.

As X’s business deteriorates, banks are stuck with billions of dollars in rapidly devaluing loans. The Federal Reserve’s interest rate hikes in 2022 are making matters worse, as banks have agreed to cap the interest rates they charge on loans to X — effectively keeping their yields below market rates.

Seeing signs of desperation from the seven banks, investors began bidding to buy the debt. In 2023, some investors offered as little as 60 cents on the dollar, meaning the banks could face losses of more than $4 billion.

Morgan Stanley kept the lenders together, betting on the relationship between one of its senior executives at the time, Michael Grimes, and Musk, a close client, according to people familiar with the matter. Morgan Stanley held weekly update calls with the other banks to share X’s business performance.

Acting as a unified bloc helped avoid a situation where one bank suddenly dumped its debt at a low price, causing a chain reaction of losses for everyone.

“Every bank understands that if one side defaults at 50 cents on the dollar, everyone is in for a huge shock,” said a bond investor who has been involved in loan underwriting.

Everything changed on election night 2024, with images of Musk appearing alongside Trump in a landslide victory. Banks saw this as an opportunity to get out of debt, and Morgan Stanley finally began leading serious talks with investors. Offers that had been around 70 cents on the dollar before the election soared to 75–80 cents.

Morgan Stanley declined to comment, while Company X did not respond to requests for information.

X’s influence in the election has not gone unnoticed by banks, and the rally in the bond market has further bolstered their portfolios. Musk’s decision to give X a stake in the fast-growing artificial intelligence company xAI has also brightened the social network’s prospects.

“Musk would never let Twitter (now X) fail,” said one banker involved in the deal. “I don’t think many people even did a thorough credit check—they just bought into Musk’s aura.”

In January, the banks quietly sold the first tranche of debt they had held for years to two investors: Diameter Capital Partners and Darsana Capital Partners. The two funds bought $1 billion of debt for 93 cents on the dollar, according to three people familiar with the transaction.

The sale to Diameter and Darsana helped “build interest” from other investors, said one person who bought the debt, describing Diameter’s role.

The bankers were pleased with the results — and quickly contacted some of the world’s largest credit unions. But before sharing any financial or performance information about X, they wanted to make sure that potential investors could afford to buy at least $250 million of debt.

Some investors who looked at the debt were shocked by the information provided. Financial statements were heavily manipulated, and while the company’s revenue appeared to have bottomed out, the data shared lacked many key metrics that investors typically need to conduct due diligence. Some told the Financial Times that the company was burning through cash at a rapid pace.

Still, big players like Apollo Global and Citadel lined up to buy. In early February, Morgan Stanley successfully sold $5.5 billion in term loans, this time at 97 cents on the dollar. The price was significant: Banks typically break even if they sell their debt commitments at 96 or 97 cents, because the fees they collect offset the discounts they have to offer to attract buyers.

“They sold on the most sketchy financials I’ve ever seen,” said one investor who declined to participate in the deal. “It’s mind-boggling. If you’re a trader, you’d understand — but buying a billion dollars like they’re asking for, we’re not playing that game… It’s crazy.”

“Twitter is not an investment, it is a trade,” commented another investor who actually bought part of the loan. “It is too early to know if they are past the worst,” he added.

Just days later, the banks returned to the market and sold another $4.74 billion in fixed-term loans at par—100 cents on the dollar—allowing them to collect the full fee on the deal. Demand was so strong that the size of the deal was expanded, leaving the banks with about $1.2 billion in second-tier loans—the riskiest part of the financing—that they had committed to provide.