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Notes -
When Musk bought Twitter, one of the ways he reduced the amount of his own money he had to put up was to borrow a large sum (roughly $13 billion) from a syndicate of banks. The deal is structured so that Twitter is the borrower, not Musk - if Twitter can't pay then Musk has the option to put more of his money in, but the standard result is that Twitter files Chapter 11, the banks end up owning it, and Musk is not on the hook for any more money than what he has already put in. The crucial point is that if Twitter goes bust, the lenders lose $13 billion less whatever they can get for Twitter in a fire sale.
The interest rates on these loans are floating - calculated as SOFR (the rate at which US banks make secured overnight loans to each other, considered a risk-free rate, and which tracks the official Fed Funds rate set by the Federal Reserve very closely) plus a spread. Typically these deals are structured in layers with senior debt (which gets paid first in a bankruptcy) paying a lower spread than the subordinated debt. In the case of Twitter, there is $7 billion at SOFR+4.75%, 3 billion at SOFR+6.5% and 3 billion at SOFR+10%. These are high interest rates, reflecting the risky nature of the deal (even with a relatively low loan-to-value ratio for a leveraged buyout). SOFR+2% would be more usual for the senior paper in this kind of deal. The floating rate means that the value of the loans isn't particularly sensitive to interest rates - if they are worth less than par, it is because Twitter is less creditworthy than when the deal was done.
The business model of syndicated lending is that the banks in the syndicate are hoping to sell the loan to investors. But if something bad happens in the gap between the deal being agreed and the deal closing (in this case, it becoming clear that Musk had drastically overpaid for Twitter, and was going to make things worse by making a high-risk change to the business model) then they can't sell the loans for face value. In this case banks often hold onto the loans rather than selling at a loss.
It looks like the banks have finally been able to sell a big slice of the loans for 97 cents on the dollar. (Which could be enough to break even - the normal arrangement fee on these deals is 2%, but Musk might have paid 3%.) But the fact that they are still selling at a small discount suggests that Twitter is less creditworthy than it was at the time the purchase was announced. Whereas if Musk had successfully executed a turnround, Twitter would be more creditworthy than it was, and the debt would trade at a premium reflecting the high interest rate.
My compliments for your elaboration, and a sincerely deserved AAQC.
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(a replacement for LIBOR, if any readers remember that scandal from a zillion years ago and understand what LIBOR was from reading the news articles of the time)
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