Firms snap up chunk of $1B debt tied to Musk's X buyout

by Sridhar Natarajan, Claire Ruckin and Laura Benitez

Diameter Capital Partners and Darsana Capital Partners were among firms that snapped up a major chunk of $1 billion of debt tied to Elon Musk’s buyout of X, according to people with knowledge of the matter.

The loans, offered to a select group of investors, were seen as a proof-of-concept trade that could help underpin demand for the social-media platform’s borrowings before it was marketed to a broader group of buyers. 

The deal paved the way for the banks, led by Morgan Stanley, to seek out more investors for as much as $3 billion of additional senior debt. Spokespeople for Darsana, Diameter and Morgan Stanley declined to comment.

The efforts are the most significant by banks so far to rid themselves of $13 billion of debt tied to Musk’s purchase of what was then called Twitter Inc. that got stuck on their books in 2022 after the billionaire launched a surprise bid to take the company private. Seven banks including Morgan Stanley, Bank of America Corp., Barclays Plc, and Mitsubishi UFJ Financial Group Inc. agreed to finance that deal.

Bankers have contacted a wider group of investors to assess their interest in buying chunks of the additional debt at a small discount to par. That marks a big improvement on the valuation of X’s borrowings, which were marked near 60 cents on the dollar by some firms in 2022 and would have caused steep losses for the banks.

Investment firms including Pacific Investment Management Co. and Apollo Global Management Inc. are among a string of credit funds studying the debt being marketed by the Morgan Stanley-led group of banks, people familiar with the matter said. Representatives for Apollo and Pimco declined to comment. 

These firms were among the players that bought heavily discounted debt that was stuck on banks balance sheets in 2022 as the Federal Reserve raised interest rates. As major players in the credit market, it is standard for them to be among those getting a look in on the deal. 

While the firms are reviewing the revamped debt package, discussions may not result in any deal, the people added.

Potential investors are being told they would have a claim on X’s interest xAI Corp., Musk’s artificial intelligence venture, Bloomberg reported earlier on Monday. The size of that stake is based on the latest fundraising that put a roughly $50 billion valuation on xAI.