New Delhi: Banks, led by Morgan Stanley, were keen to help Elon Musk, the richest man in the world, when they agreed to assist in financing his purchase of Twitter Inc. in April. At this point, neither Musk nor the banks have a clear escape route.

The acquisition will receive $13 billion in debt financing from lenders that also include Bank of America Corp., Barclays Plc, and Mitsubishi UFJ Financial Group Inc. According to calculations by Bloomberg, if the debt were to be liquidated right now, their losses would total $500 million or more.

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Public documents and attorneys who have looked at them reveal that they promised to fund the transaction whether or not they were able to sell the debt to outside investors.

“I think that those banks would like to get out of it, I think the deal makes less sense for them now, and that the debt will be harder to syndicate to investors,” said Howard Fischer, partner at law firm Moses Singer. But Fischer, a former senior trial counsel at the Securities and Exchange Commission who isn’t involved in Twitter, said there’s no legal basis for them to back out.

Since April, the yields on junk bonds and leveraged loans have increased, which means that banks will lose money because they pledged to offer funding at lower yields than the market will currently tolerate. Any losses that the banks incur as a result of this arrangement come after they have already written down and lost billions of dollars’ worth of assets this year as a result of rate hikes by central banks around the world to control inflation.

Selling bonds and loans associated with the transaction would probably not be achievable prior to the takeover closing, even if the banks were able to find buyers for Twitter debt in the market right now, which is far from guaranteed.

According to estimates from Deutsche Bank AG, banks have a pipeline of debt financings totaling about $50 billion that they want to provide in the upcoming months. Normally, banks would sell bonds and loans to finance those purchases, but because investors are less anxious to buy right now than they were earlier in the year, it will be challenging to get rid of this debt.

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Due to this, banks are being forced to supply the financing themselves on a number of transactions, placing pressure on their profitability and capital needs. For instance, according to Bloomberg on Tuesday, lenders including Bank of America and Barclays anticipate having to provide $8.35 billion in loans for the leveraged purchase of Nielsen Holdings the following week.

Morgan Stanley, Bank of America, Barclays, MUFG, and Twitter representatives all declined to comment. An inquiry for comment was not immediately answered by a Musk official.

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