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It was on, and then it was off, and now it’s on again — Elon Musk has reportedly proposed to go through with his acquisition of Twitter at the original offer price of $54.20 a share.

Twitter shares are up on the news, which was reported by Bloomberg earlier today. The company’s bonds are trading towards par.

Is this real? Who knows. Many people didn’t think Musk’s original proposal was real, and then suddenly it was, until it wasn’t.

Whether or not he’s truly serious this time, this latest turn of events suddenly puts the deal’s debt financing back in focus, at a time of extreme discomfort for LBO underwriters.

In their original commitment letter, the Morgan Stanley-led underwriter group promised to lend Twitter around $13bn to support the deal.

The capital structure has been rejigged slightly since then, with the margin loan to Musk himself replaced by equity. It could be recut again, just as Citrix’s underwriters did many times, before and during syndication.

Still, the below table (which we put together back in April) gives the broad gist of the Twitter underwrite:

Obviously, the market for LBO debt has cratered since this deal was underwritten, and it’s unlikely that the Twitter bank group would try and launch syndication tomorrow. But based on today’s markets, how much might they hypothetically stand to lose?

Let’s assume the banks can offload the entire capital structure (a big if in this market). Using Citrix as a recent software LBO comp, assuming a standard fee structure, and making generous assumptions about caps and clearing levels: we estimate potential losses of close to $500m.

We should note that this number is purely based on the debt component. If the deal goes through, some of the banks will book M&A advisory fees that would help offset these losses.

Morgan Stanley declined to comment. Twitter did not respond to a request for comment, and efforts to reach Elon Musk were unsuccessful.

That’s assuming the banks could even syndicate at all. Plenty of our sources have been suggesting that the primary market for risky LBO debt is more or less entirely closed right now, especially after last week’s aborted Brightspeed syndication.

What does primary look like today? Well, Enerflex, a Canadian energy services company, is braving the primary market this week with an offering of double-B secured notes that are whispered at 12%.

That’s secured debt in the energy sector, which has become the darling of the HY market this year. Imagine the clearing level for unsecured debt on a mega-jumbo software LBO, where the incoming owner spent months arguing that he didn’t want to actually own the company?

“Employees are demoralized and quitting, and it’s only gotten worse over the last three months,” said a buysider. “There’s lots of animosity between Musk and the employees. In a market like this, I don’t see how one gets comfortable with it.”

In this market, the banks might need to deploy all the tricks in syndication playbook, as we discussed in last week’s Cloud 9fin podcast: splitting the term loan portion into a TLB and a TLA, offering lockup periods and/or a syndication MFN, tapping up anchor lenders…the list goes on.

Several sources suggested the banks could push syndication to next year, in hopes that the market might bounce back.

On that basis, it’s a good job they extended the commitment period. The current commitment deadline is 25 April 2023; the original deadline was 20 October, just over two weeks from now.

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Twitter is back on — how much could the banks lose?

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