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Banks financing Elon Musk's Twitter acquisition face wide losses

Yahoo Finance's Ines Ferré breaks down the liabilities banks financing Elon Musk's Twitter takeover face now that interest rates have risen.

Video Transcript

AKIKO FUJITA: Well, after months of legal drama, Elon Musk is now proposing to proceed with the purchase of Twitter at $54.20 a share. Its stock is now closer to that value, but banks could be on the losing end of the deal. Yahoo Finance's Ines Ferre has that story. She's been crunching the numbers for us. Ines, what do we see?

INES FERRE: Yeah, Akiko, and really holding debt is riskier now in this tighter monetary environment. So back in April, back in the spring, the banks had committed-- several banks committed to lending as part of this deal with Twitter. So Musk would be putting in part of the money for the Twitter deal. And then up to $13 billion would be coming from the banks-- the likes of Morgan Stanley, Barclays, Bank of America. So they signed commitment letters to fund part of this deal.

And the intention was really to sell that debt to institutional investors. But that's when interest rates were lower. And a lot has changed since then. The Fed has been hiking rates. So it's a different scenario. It's harder to unload that debt. And so banks are likely going to have to offer a discount on that debt. Investors have been really reluctant to take on risky debt, especially in this environment, an environment of slowing economies.

And so, the banks have their backs against the wall, basically. They're committed to funding this deal, but of course, there's-- this also shows you an overall example of the corporate debt market and very little appetite for it in this tighter monetary environment.

AKIKO FUJITA: Yeah, it shows how quickly the environment has shifted over the last several months. Ines, thanks so much for that.