Banks that agreed to fund Elon Musk’s takeover of Twitter Inc. TWTR -0.80%▼ are facing the possibility of big losses now that the billionaire has shifted course and indicated a willingness to follow through with the deal, in the latest sign of trouble for debt markets that are crucial for funding takeovers.
The $44 billion deal, which Mr. Musk had been trying to walk away from, would be paid for in part with some $13 billion of debt seven banks including Morgan Stanley, MS -1.34%▼ Bank of America Corp. BAC -0.70%▼ and Barclays BCS -3.61%▼ PLC agreed to provide when the takeover was sealed in April.
As is typical in leveraged buyouts, the banks planned to unload the debt rather than hold it on their books, but a decline in markets since April means that if they did so now they would be on the hook for losses that could run into the hundreds of millions, according to people familiar with the matter.
Banks are presently looking at an estimated $500 million in losses if they tried to unload all the debt to third-party investors, according to 9fin, a leveraged-finance analytics firm.
Join the conversation as a VIP Member