Twitter debt: the brand new Trump commerce | USAEMALL.com

One thing to start: UnitedHealth Group has raised concerns with the top US securities regulator over a social media post by activist investor Bill Ackman, who claimed that the healthcare group could be inflating its profits.

In today’s newsletter:

• Wall Street unloads its Muskian headache

• A coffee-and-doughnut-fuelled insurance play

• Barbarians after the brakes

Banks exit their Twitter nightmare

Morgan Stanley may need to thank one man for the ability to clear some of the biggest hung loans stuck on its balance sheet: Donald Trump.

The bank on Wednesday sold a huge part of the nearly $13bn of debt it and six other lenders were forced to provide to finance Elon Musk’s $44bn takeover of Twitter in 2022.

The financing package almost immediately went south — between Russia’s full-scale invasion of Ukraine, the Federal Reserve’s race to raise interest rates and Musk’s own lawsuit to back out of the deal — and the seven banks involved ended up with egg on their faces.

Hedge funds offered just 60 cents on the dollar in 2023 for the senior loans, even as some characterised the company’s fate as “unanalysable”.

But Trump’s election changed all of that. On Wednesday, Morgan Stanley sold $5.5bn of its Twitter — now X — exposure. That followed a sale of $1bn of the loans last month.

The deal attracted some of the biggest credit investors, with Citadel, Apollo Global Management, Pimco and Diameter Capital all buying in, sources tell DD.

And while many have been warmed by Musk’s ability to cut costs at the company as well as the valuable stake X owns in his artificial intelligence venture xAI, Trump was high on all investors’ minds.

One money manager who passed on the deal said it was a good time for the banks to sell, pointing to “Elon’s cachet. He is an FOP, a friend of the president.”

It’s perhaps the best ending Morgan Stanley, Bank of America, Barclays, MUFG, BNP Paribas, Mizuho and Société Générale could hope for.

“I don’t want to sugarcoat it, the banks did not want to be in this position,” one person involved in the deal said.

Those banks spent the past two years holding the debt themselves, partly assuaged by guarantees Musk made that they would not lose money, people familiar with the matter said.

Now they’re hoping that their decision to stand by the billionaire chief executive of SpaceX and Tesla could lead to lucrative future paydays by winning banking assignments for his other businesses.

The seven lenders still have $6bn of Twitter debt to sell (loans that are considerably more risky than the debt offloaded so far). And Morgan Stanley will be hoping Musk’s ties to Trump endure.

Annuities, doughnuts and cheap perfume

JAB Holding, one of Europe’s pre-eminent dealmaking conglomerates and the owner of Krispy Kreme, Pret A Manger and Coty, is adding insurance to its portfolio.

The conglomerate, which is controlled by the intensely private billionaire Reimann family, told the FT in an interview last year that it would reshape its portfolio to build around financial services businesses such as insurance.

On Wednesday, it unveiled the first major step, buying Virginia-based Prosperity Life for just over $3bn from Elliott Management, said people familiar with the matter.

The shift towards insurance began last year with an executive overhaul. JAB made a splashy hire in tapping US-based insurance veteran Anant Bhalla as chief investment officer.

It’s been well chronicled by DD how alternative asset managers are pushing into the insurance sector in order to tap deep wells of more permanent capital that can steadily compound returns for decades like Berkshire Hathaway.

But JAB is a surprising home. It has ample capital and isn’t yet originating a hamster wheel of loans that must be distributed, like Apollo Global Management.

The conglomerate, which traces its origins to a Mittelstand chemicals business that owned stakes in Reckitt Benckiser and Coty, became a sensation in global dealmaking beginning in 2012 after creating a holding company to chase deals led by former Mars executive Olivier Goudet.

It spent tens of billions of dollars consolidating industries spanning coffee to quick-service restaurants, perfumes and veterinarian services — businesses insulated from broader economic volatility.

But it didn’t exactly work out that way. In 2023 Goudet was replaced in an abrupt leadership shake-up, before the group began its financial services push.

So how will insurance fit within JAB?

One person familiar with the business shift said the insurance acquisition was essentially a “natural market hedge”. When interest rates are high and consumer companies struggle, the insurance business will hopefully outperform, balancing out the group’s overall finances.

This hasn’t always worked well for conglomerates.

General Electric famously was a giant in insurance through its GE Capital division, a unit that under longtime chief Jack Welch helped to boost profits whenever other units spanning jet engines to dishwashers to MRI machines fell short.

But GE lost billions on long-term care insurance contracts, pummelling its cash flows after not predicting rising longevity.

In the age of Ozempic, doughnut sales and insurance actuarial tables may hold surprising correlations.

An up-tiering battle in Japan

It’s not been long since KKR portfolio company Marelli, a car parts supplier headquartered in Japan, went through the kind of major debt restructuring that cast a shadow over private equity in the country.

That was in 2022.

Since then, distressed debt investors Strategic Value Partners and Fortress investment group have bought up some of its debt, and they’re now in tense talks with the company that could push it into another restructuring.

Marelli needs funds to fill what it says is a “temporary working capital gap”.

A consortium including SVP and Fortress has proposed providing the funds, but only if the new loans — and also old loans made by those participating — are made senior to other debt.

Such so-called up-tiering may be increasingly common in the US and Europe, but in Japan it can be considered aggressive.

These kinds of legal brawls — sometimes called creditor-on-creditor violence — have proliferated in the US public debt markets in recent years.

Investors at these distressed debt shops scour credit agreements for potential loopholes, and famously aren’t afraid to pull punches. (DD’s very own Sujeet Indap has spilled plenty of ink on the subject.)

In recent months, Japan has seen hostile takeover approaches (Alimentation Couche-Tard of Seven & i), proposed megamergers (Honda and Nissan) and private equity brawls (KKR and Bain Capital for Fuji Soft) that have spilled out into the open.

The country has been opening up to a more American model of financial capitalism with shareholder-friendly reforms in recent years — but this may be a particularly tough test.

Yet for Japan, it’s also a sign of the times.

Job moves 

• Ares Management has promoted Kipp deVeer and Blair Jacobson to co-presidents as chief executive Michael Arougheti pushes to broaden the private investment firm’s top ranks.

• The White House has nominated Ben Black — the son of former Apollo chief executive Leon Black — to head the International Development Finance Corporation, which is being pushed by some officials to act more like a sovereign wealth fund, Bloomberg reports.

• Latham & Watkins has hired Jerome McCluskey to the firm’s banking and private equity finance practices. He was previously the general counsel at Charlesbank Capital Partners. 

Smart reads

Tariff trouble Wall Street analysts have bombarded executives of listed companies with questions over how they will cope with the trade wars, the FT reports.

Falling behind The bond giant Pimco is struggling to keep up as rivals plough full steam into the private-markets gold rush, Bloomberg writes.

Sovereign wealth fun Donald Trump seems to be making the first concrete steps towards a US sovereign wealth fund, and our friends at FT Alphaville dive into how it may work.

News round-up

Nissan’s board rejects $58bn merger with Honda (FT)

KKR-backed Cotiviti nears deal for rival healthcare data group Edifecs (FT)

World’s biggest offshore wind developer Ørsted slashes investment by 25% (FT)

Lloyds hit with £1bn tax bill after legal challenge fails (FT)

British Airways backtracks on overhaul of frequent flyer club perks (FT)

Starmer wants contentious North Sea oil and gas fields to go ahead (FT)

EU probes Shein over consumer protection (FT)

US Postal Service backtracks on suspension of packages from China (FT)

Santander unveils €10bn buyback on record profits (FT)