Wall Street gears up to sell off X debt as Musk acknowledges platform challenges

A group of eleven Wall Street banks, including Morgan Stanley, Barclays, and Bank of America, are gearing up to unload billions of dollars in loans associated with Elon Musk’s acquisition of the social media platform formerly known as Twitter, now rebranded as X. The banks are looking to divest themselves of this debt at a reduced rate of 90 to 95 cents on the dollar, a strategy aimed at shedding a weight that has lingered since Musk’s $44 billion acquisition in 2022.

The decision to offload this debt comes at a crucial moment for X, as Musk recently disclosed in a letter to employees that the platform is barely managing to break even. Musk emphasized the platform’s challenges, citing stagnating user growth, disappointing revenues, and ongoing financial woes. Despite these setbacks, Musk highlighted X’s significant impact, asserting that the platform has influenced national conversations and outcomes in recent times.

The impending sale of a portion of the $13 billion debt package underscores the financial pressure faced by both X and its lenders. Originally procured as part of the financing for Musk’s acquisition, these loans have become a burden due to adverse market conditions and the platform’s shaky performance. Financial experts have labeled the X deal as one of the most problematic leveraged acquisitions since the 2008 financial crisis. For over two years, the banks have had to retain this debt on their balance sheets, tying up capital and exposing themselves to potential losses.

The anticipated discount of up to 10% signals a cautious outlook from the market participants, who are evaluating the risks associated with X’s financial stability. On top of financial challenges, X has been grappling with dwindling advertising revenue, a primary income source for the platform. Following Musk’s takeover, X experienced an exodus of advertisers, concerned about content moderation policies and brand safety. Although some advertisers have returned, others remain hesitant, leading X to pursue legal action against companies like Unilever and Mars over alleged violations of antitrust laws.

In an effort to diversify its revenue streams, X has shifted towards a subscription-based model, introducing premium accounts and paid content. However, these initiatives have not been able to offset the decline in advertising revenue, leaving the company in a precarious financial position. As the platform faces these challenges, the sale of its debt by Wall Street banks emerges as a crucial step to mitigate their losses and release capital tied to the X deal.

For potential investors eyeing this high-yield debt sale, confidence in X’s prospects for achieving sustainable profitability is paramount. Musk’s recent acknowledgment of X’s precarious financial situation as “barely breaking even” may pose hurdles in attracting buyers. Consequently, the pricing and structure of the debt sale will play a pivotal role in determining its success. Amidst these financial intricacies, X’s competitive edge in the social media landscape remains uncertain, as the platform struggles to regain advertising revenue and user engagement levels witnessed before Musk’s acquisition.