Elon Musk Demonstrates the Power of Owing Money: When the Debt Is Large, the Bank Should Fear You

In 2022, Elon Musk, the world’s richest man, secured $13 billion from major banks to purchase Twitter. Promising that the banks wouldn’t incur losses, Musk’s bold financial move initially caused trepidation among lenders, who feared the risk of bad debts.

Fast forward to last month, the lenders—including Morgan Stanley and Bank of America—sold off the remaining parts of the loan that initially funded Musk’s $44 billion Twitter buyout. This debt, once considered highly toxic, was finally offloaded at a slight discount, with the company covering some losses to make the deal palatable. This unexpected turnaround was seen as a major financial achievement, especially given the risk involved.

Last year, the banks faced a tough decision: sell their loans at steep discounts or trust Musk’s assurances and hold onto the debt. As the company’s value declined and interest rates rose, the loans lost value, prompting many to attempt to sell their holdings at significant losses—sometimes at just 60 cents per dollar, risking billions in losses.

However, Musk’s increasing influence—highlighted by his association with President Trump’s electoral victory—baved a new hope for debt recovery. With renewed confidence, Morgan Stanley led efforts in late 2024 to resell the debt at higher prices, spurred by Musk’s political influence and strategic moves like investing in artificial intelligence company xAI.

In January, some banks sold parts of their debt holdings to investors like Diameter Capital and Darsana Capital at around 93 cents on the dollar. Despite concerns over manipulated financial data and rapid cash burn, large investment firms still committed to buying, betting on Musk’s resilience.

Recent sales of new loans at near par value (100 cents on the dollar) reflect the banks’ hope that Musk’s influence and strategic repositioning will stabilize Twitter’s fortunes. The aggressive buying and selling demonstrate a shift in perception—where Musk’s ability to influence politics and technology can turn debts into profits, even amid uncertainty.

Overall, Musk’s ability to turn massive debt into a strategic advantage underscores a fundamental financial lesson: when you owe a lot, the banks might end up fearing you.