Overview
In the end, the unexpected thing about Elon Musk’s Twitter deal wasn’t the bid; Musk himself first floated the idea of a buyout in an idle tweet back in 2017. Instead, it was the financing package that the billionaire Tesla boss managed to line up that caught some by surprise. Digging deeper into the details of Musk’s $44 billion deal, now approved by Twitter’s board, it’s clear just how integral private debt markets are becoming to big ticket mergers and acquisitions, as this week’s Chart Room shows.
First, let’s unpack the numbers on the $46.5 billion financing package backing the bid. According to figures outlined by the FT, alongside around $21 billion of Musk’s personal cash equity and an unusual $12.5 billion margin loan pledged against Tesla shares , the deal includes a $13 billion debt component made up of a $6.5 billion senior loan and a $500 million revolving credit facility – both of which are private lending facilities – and up to $3 billion each of secured and unsecured bridge facilities that are likely to be sold down to the public high-yield bond market.
It’s the structure of this debt part of Musk’s funding package that’s both interesting and increasingly typical in the market, as private markets step up to do the heavy lifting to provide finance to acquisitive borrowers. For example, consider that more than 60 per cent of European borrowers who launched leveraged buyouts since 2009 tapped private markets for at least part of their financing. Increasingly, this means using a combination of senior loans, more subordinated second-lien facilities, or mezzanine debt. In 2021, around 44 per cent of European borrowers sourced their financing solely from the senior loan market, with a further 17 per cent using both senior loans and high-yield bonds.
What this shows is just how deep the global private leveraged loan market have become, especially when it is accessed in tandem with the high-yield bond market. Musk’s $6.5 billion senior loan is large, but it is not beyond what the private markets have already swallowed recently. Last year, private equity owners Blackstone, Carlyle, and Hellman & Friedman raised around $7.8 billion of leveraged loans and $6.5 billion of secured and unsecured high-yield bonds to fund their $34 billion takeover of a majority stake in the US medical supply firm Medline. In Europe, ThyssenKrupp Elevator in 2021 wrapped a €5.5 billion term loan as part of a €10.3 billion financing package.
Indeed, while the European loan market has generally been smaller than its US counterpart, a full fifth of the transactions completed in 2021 were sized at €1 billion or above, according to data provider LCD, up from only 4 per cent of the market in 2008.
For investors, larger deals mean a bigger playing field to access new credits, greater flexibility with more liquidity available, and a more viable alternative to public debt markets. The private debt route also offers debt of a higher seniority and lower default rate. In short, private debt markets represent an interesting alternative channel for investors to gain exposure to headline-grabbing mega-buyouts – no matter whether those deals are led by private equity giants, by billionaire entrepreneurs, or even by those who do profess to do “basically zero investing.”
