So what if Twitter finally went bankrupt?
Shareholders bear the brunt of bankruptcy losses, meaning Musk and a handful of backers could wipe out the value of their $33.5 billion investment in the company’s stock. It also becomes certain that Musk’s control over the company will end, because creditors will often get a share of the new company’s stock after its restructuring, in exchange for the cancellation of their debts in the traditional bankruptcy method, which largely guarantees that Musk will not resort to that step except as a last resort.
Chapter eleven aims to regulate the bankruptcy of companies to restructure, not to finish their work, and Twitter could theoretically be able to rise from the wreckage if that scenario were applied, but then it will come under the control of the lender banks.
And the Group of Seven Banks did not want to lead “Morgan Stanley“, who initially did not intend to keep the debt, to achieve that situation, as they mostly sold the debt to money managers, before completing the deal through unrated bonds and leveraged loans, but did not have the opportunity to do so because Musk suddenly reversed his stance towards acquiring ‘Twitter’, coupled with market volatility.
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Some of the funds, ahead of Musk’s bankruptcy filing this week, offered to buy part of the loan package at a discount of up to 60 cents on the dollar, in one of the largest writedowns of that type of loan in a decade, the meaning banks could incur huge losses and investors are already pricing in some default risk.
It is now almost certain that following Musk’s comments, it will become more difficult for banks to sell debt to potential investors, who would likely want to see the company perform well for several quarters before preparing to participate.
