Investing in X (formerly Twitter) looks like a very bad idea right now.
As readers may recall, Elon Musk borrowed $13 billion from Morgan Stanley, Bank of America and five other major banks to finance the $44 billion acquisition. According to the WSJ, the deal was the worst merger-finance deal for banks since the financial crisis of 2008-2009.
Why? When banks lend money for acquisitions, they usually sell that debt to someone else to make a commission on the transaction. X was in a weak financial position, so the loans weighed on the bank, creating what the industry calls “hung deals.”
The WSJ notes that the banks agreed to guarantee these loans because “the prospect of banking the world’s richest man was too tempting to pass up.” Now, that looks like a costly mistake, as long as X is extracting interest payments and not paying back the principal when the loan matures.
