As one of the banks funding Elon Musk's renewed intention to complete his Twitter Inc (NYSE:TWTR) takeover, Barclays PLC (LON:BARC) could be facing sizeable losses.
Overnight, it was revealed by Twitter that the boss of Tesla Inc (NASDAQ:TSLA) and SpaceX was no longer intending to back out of the US$44bn deal.
Banks including Barclays, Morgan Stanley (NYSE:MS), Bank of America Corp (NYSE:BAC) and France's BNP Paribas (EPA:BNPP) have committed to providing US$12.5bn of the cost of the deal, with Musk stumping up the lion's share of the funds in cash by selling down his stake in Tesla.
When backing large acquisitions, banks sell the debt to remove the risk from their books. But the turning tides of the financial markets in recent weeks could lead to losses for the banks in the hundreds of millions of dollars, industry experts told Reuters.
Investors have veered away from riskier debt such as these leveraged loans, worried by central banks across the globe quickly raising interest rates, ramping up recession fears that were already rising after Russia's invasion of Ukraine, leading analysts to warn that the outlook was poor for the banks trying to sell the debt.
Musk has also persuaded equity investors to back the deal, including the venture capital firm Andreessen Horowitz and the tech mogul Larry Ellison.
The syndicate of lenders, which also includes Societe Generale (EPA:SOGN) and Japan's Mizuho Financial and Mitsubishi UFJ Financial, remain on the hook until April, according to the terms of their contract, the New York Times noted.
Analysts at broker Wedbush told Reuters it was "less than ideal" for the banks but "they have no choice but to finance the deal".
They said they believed Musk made a U-turn on the deal as he "saw the writing on the wall" and knew his chances of a victory in the courts was "slim to none with the best path accepting the current deal and move forward".
"For Musk the irony is the easy part of this deal was buying Twitter, the hard part will be fixing it with monetization and subscriber engagement a Rubik's Cube problem for Twitter over the past decade."