Elon Musk’s Twitter deal could pose a headache for banks

Elon Musk reversed his stance on Tuesday and renewed his commitment to buy Twitter Inc. TWTR.

What Happened: Although the development removes an overhang on the shares of both Musk's Tesla Inc. TSLA and Twitter, it could pose a headache for banks that have given funding commitments, according to Bloomberg.

In April, Wall Street banks, led by Morgan Stanley MS, had pledged $12.5 debt financing with the intention of selling most of it to institutional asset managers.

See also: Much Wow: Elon Musk Revives $44 B Twitter Offer, Keeps Doge coin Out of Doghouse

The report said the deal is $6.5 billion of leverage, $3 billion of secured bonds and $3 billion of unsecured bonds. The banks have agreed to give a $500 million revolving credit facility.

It's important to note that if the terms remain the same, these banks could face difficulty selling the debt, because the credit market is already distressed due to the macroeconomic uncertainty, according to the report.

If the financiers decide to sell it to investors, they could be facing hundreds of millions of dollars of losses on the unsecured portion of the financing.

The bankers may have to offer the debt at a steep discount because of the sky-high yields. If there are no takers, the bankers may have to finance the deal themselves, the report said.

According to Bloomberg, Twitter debt is part of a roughly $51 billion of risky committed financings that banks need to sell to asset managers. It added that it is possible that this could cause a wider fallout in the corporate debt markets.

According to Benzinga Pro data, Morgan Stanely closed Tuesday's session at $83.97, up 4.47%.