Banks this week sold $5.5 billion in debt tied to Elon Musk’s 2022 buyout of Twitter , signaling that Wall Street's confidence in Musk is rising alongside the billionaire’s elevated status in Washington.
Higher-than-expected demand boosted pricing for the debt attached to Musk’s social media platform, now called X.
Investors purchased the loans from a group of banks that was led by Morgan Stanley ( MS ) and included Bank of America ( BAC ) for $0.97 on the dollar of their initial value, according to a person familiar with the matter.
That is roughly $0.02 more than banks initially expected last week, this person said.
The Wall Street Journal and Bloomberg earlier reported on the outcome of the sales.
Such an outcome signals Wall Street’s view of the social media platform has become substantially more rosy in recent months as Musk backed Donald Trump's run for president and took over the newly formed Department of Government Efficiency (DOGE) in Washington.
The outcome also represents a lucky turn of events for the banks.
Banks fronted $13 billion in financing when Musk bought Twitter in October 2022 for $44 billion. But those loans lost value as X struggled, and banks weren’t able to get them off their books without taking significant losses.
Holding such debt for an extended period can be a substantial drag on banks' regulatory capital requirements, leading to less capacity to finance new buyout deals.
These banks still hold roughly $6 billion in riskier junior portions of the debt. It's not clear whether they are looking to offload those stakes.
They have earned approximately $3 billion in interest income from holding those loans since Musk took over Twitter, according to calculations by Bloomberg.
Last week, the banks began shopping approximately $3 billion in senior portions of the debt tied to Musk’s 2022 Twitter buyout at around $0.90 to $0.95 on the dollar. They had previously tested demand with $1 billion of the senior debt.
What helped with this week's sales was that more advertisers are moving back to X since Musk’s acquisition. Bloomberg separately reported that the offer from the banks came with the added incentive of a claim on X's interest in Musk’s AI startup xAI Corp.
Musk is looking to convince Wall Street that his new role in D.C. will bring other benefits.
The world’s richest man is expected to speak this week at a private JPMorgan event that will be attended by CEO Jamie Dimon, according to a person familiar with the situation.
Musk referenced this appearance on his social media platform Sunday night, noting that his goal was to explain what cost savings identified by DOGE could mean for markets.
"I'm giving a talk later this week with JPMorgan Chase and Jamie Dimon, and this [will obviously be to a] financial audience, and really just to say, look, if you're shorting bonds, I think you're on the wrong side of the bet," Musk said.
"The bond markets don’t currently reflect the savings that we are confident we can achieve," Musk added.
At DOGE, Musk is working quickly to restructure or even shut down various government agencies, including the US Agency for International Development (USAID).
The legal ramifications of such sweeping actions remain unclear and could face challenges in the courts as unconstitutional.
As part of those efforts, DOGE gained access to the Treasury Department’s payment system. Over the weekend, Musk said on X that DOGE is shutting down some Treasury payments in an effort to root out "corruption and waste."
"There will be less debt needed as we stop wasting taxpayer money on crazy things," Musk added in that same Sunday night talk.
Treasury Secretary Scott Bessent offered assurances about Musk's work during a Fox News interview Wednesday that "our payment system is not being touched."
"There's a study being done. Can we have more accountability, more accuracy, more traceability that the money is going where it is?" Bessent added.
Dimon has suggested recently that his relationship with Musk is improving.
"I wish him the best," Dimon told CNBC last month while attending the World Economic Forum in Davos, Switzerland.
"It's going to be complicated; the federal government's complicated. If we can be helpful to them, I'd love to be helpful to them,” he added in that interview.
After a decade-long dispute, JPMorgan and Tesla, the electric car maker Musk also runs, ended a legal fight last December. They struck a new commercial relationship the same month.
During his CNBC interview last month, Dimon praised Musk as "our Einstein" and said that the two of them had "hugged it out."
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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