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Banks have begun preparations to try to unload at least some of the $13 billion of debt they underwrote, at a steep discount

The banks that financed Elon Musk’s $44 billion purchase of Twitter are still struggling a year later to contain the damage to their balance sheets.

Seven banks including Morgan Stanley MS -0.20%decrease; red down pointing triangle, Bank of America BAC -0.39%decrease; red down pointing triangle and Barclays BCS -6.98%decrease; red down pointing triangle lent Musk around $13 billion to buy Twitter a year ago this coming Friday. Under normal circumstances, they would have unloaded the debt to Wall Street investment firms soon thereafter. But investor appetite for Twitter, which Musk has since renamed X, has cooled since the billionaire took over, forcing the banks to hold the debt on their own balance sheets at a discounted value.

The banks currently expect to take a hit of at least 15%, or roughly $2 billion, when they sell the debt, people familiar with the matter said. That would mean hundreds of millions in losses for those holding the largest pieces, which include Morgan Stanley, Bank of America, Barclays and MUFG. BNP Paribas, Société Générale and Mizuho were also involved.

After holding the debt for a year—an eternity in the corporate-finance world—the banks, which had hoped they could sell it by Labor Day, have recently begun preparations to try to unload at least some of it, the people said.

First they must secure a rating from the likes of Moody’s and S&P, a quality seal investors such as mutual funds and loan managers typically require. If X receives a low credit rating, it would be hard for the banks to sell the debt to a broad investor base without taking an even bigger loss than what they are already anticipating.

Bankers close to the deal say that Musk’s capricious management and a weakening advertising market could point to a junk-bond rating, a designation reserved for companies at higher risk of defaulting. Musk himself said last year that X was near the brink of bankruptcy after he took over.

Twitter pre-Musk was rated junk, despite carrying significantly less debt than it does now. Given that X is no longer publicly traded, it doesn’t disclose its financials, though Musk has said the platform’s advertising revenues have plummeted since he bought it.

The company has slashed thousands of jobs and other costs under his ownership, partly to help support the hefty interest payments it must pay on the debt, and Chief Executive Linda Yaccarino has said she expects X will turn a profit next year.

Musk’s debt package included $6.5 billion in term loans, $6 billion split equally between secured and unsecured bonds and a $500 million revolving line of credit.

X’s unsold debt ranks among the largest and longest-held “hung” deals. Banks were in similar pickles in periods such as 2007-08, when investors lost confidence in the financial system during the financial crisis. They eventually managed to sell billions of debt backing major takeover deals as markets calmed down but were forced to swallow big losses.

The X deal should have been a fee bonanza for the banks, who stood to earn tens of millions of dollars on the debt. Instead, their inability to resell it has been an albatross on their lending businesses and prompted questions from their own investors.

Banks limit how much risk they take on at any given time, so holding X’s debt has taken up loan-book capacity that their deal makers would prefer to allocate elsewhere.

Big hung deals don’t sit well with regulators, who have been making more diligent checks on banks’ financial footing following the failures of Silicon Valley Bank and others earlier this year. The longer the banks hold X’s debt, the greater the scrutiny is likely to be from regulators, who penalize lenders for having direct credit exposure to junk-rated companies.

Rising interest rates weigh on the sector, including iShares clean-energy ETF

Clean-energy stocks have fallen out of favor, with pressures created by rising interest rates outweighing supportive government policies.

The iShares Global Clean Energy ETF reached its lowest level since July 2020 this week. The exchange-traded fund invests in renewable-energy companies and utilities in line with a benchmark compiled by S&P Dow Jones Indices, including First Solar FSLR 3.03%increase; green up pointing triangle and Plug Power PLUG 7.14%increase; green up pointing triangle. It has plunged 32% this year.

Some stocks have fallen even harder. U.S.-listed Enphase Energy has shed 64% in 2023, while competitor SolarEdge Technologies has sunk more than 70%. Excluding stocks that have been ejected from the S&P 500, SolarEdge ranks as the index’s worst performer this year.

Supply-chain problems and waning demand have added to the challenges created by higher borrowing costs. The result: a stock-market selloff despite commitments by the U.S. and other large economies to foster sustainable power generation.

“The policy backdrop is very supportive. But there are headwinds. Clean tech is a very interest-rate-sensitive sector,” said Simon Webber, a global equities portfolio manager at Schroders.

He said the industry’s long-term prospects were still good. “I think this is a low point in the cycle,” Webber added.

The Biden administration’s Inflation Reduction Act of 2022 allocates close to $400 billion to clean-energy development through direct funding and tax credits. This program has attracted more than $120 billion in project proposals, according to ING.

Meanwhile, the European Union is also endeavoring to build up its ability to generate homegrown energy and reduce its dependence on natural-gas imports—the EU learned a tough lesson from disrupted Russian supplies following the Ukraine invasion. The bloc’s lawmakers passed a bill last month that boosted its renewable-energy target for 2030.

The clean-energy sector broadly falls into two categories: companies that make or deploy capital-intensive infrastructure, such as wind turbines or solar panels, and those that are developing new technology. Both groups come under pressure from higher rates.

The Federal Reserve has lifted its key interest rate to a 22-year high. In turn, market-based interest rates such as government bond yields—which help set borrowing costs across the economy—have surged. The 10-year Treasury yield hit 5% Monday.

Renewables projects typically need a lot of upfront funding to buy equipment such as solar panels and wind turbines, which is then repaid over time by electricity sales. As much as 80% of such projects are financed by debt, according to a 2020 U.S. government report. Pricier loans eat into projects’ expected returns, making it less attractive to embark on new developments.

Rising rates also hurt riskier investments such as nascent clean-energy technologies. Current interest rates are used by bankers and investors in calculating what future cash flows should be worth today. For more speculative investments, whose value is based largely on far-off future cash flows, higher rates result in a lower valuation.

While tech stocks have felt this pressure for a while, excitement over artificial intelligence has shielded some companies, said Shaniel Ramjee, a multiasset fund manager at Pictet Asset Management. “There isn’t much overlap between AI and clean tech, though,” he added.

Other problems are further spooking investors.

Munich-based Siemens Energy scrapped its profit outlook in June after its wind unit said turbine components were failing more often, while executives at Danish wind-turbine manufacturer Vestas Wind Systems have warned of persistent supply-chain disruptions that will last through the rest of this year.

Some makers of home solar equipment are struggling with softening demand and say that installers have built up high backlogs of inventories, resulting in lower orders.

Many buyers of solar panels for houses finance them using loans, making these purchasers also sensitive to higher interest rates.

SolarEdge, which makes inverters for converting current generated by solar panels, slashed its revenue forecasts last week. The move sparked a record 27% collapse in its shares and prompted a string of price-target cuts and ratings downgrades from analysts at banks such as Goldman Sachs and Deutsche Bank.

Some fund managers expect the turbulence to be short-lived, and see this as a good time to buy.

“Nothing has changed in the long-term picture. So this might be an interesting opportunity, now that valuations have really come down,” said Caroline Simmons, chief investment officer at UBS Global Wealth Management in the U.K.

In the shorter term, however, she has a different strategy. This year, Simmons said, the portfolios she manages have loaded up on oil stocks to benefit from rising crude prices.

Akio Toyoda’s comments come amid cooling U.S. demand and a price war with China

TOKYO—Toyota TM 0.18%increase; green up pointing triangle Motor Chairman Akio Toyoda, asked about electric-vehicle challenges including a recent lull in U.S. demand, said the industry was coming to recognize that there isn’t a single answer to reducing carbon emissions.

“People are finally seeing reality,” Toyoda said Wednesday, speaking in his capacity as the head of the Japan Automobile Manufacturers Association.

Toyoda, who stepped down this year as Toyota chief executive after nearly 14 years on the job, has long said the auto industry should hedge its bets by continuing to invest in hybrid gasoline-electric cars and other options beyond just electric vehicles.

As EV sales momentum lags behind in the U.S., he may be enjoying an “I told you so” moment.

“There are many ways to climb the mountain that is achieving carbon neutrality,” Toyoda told a small group of reporters at the Japan Mobility Show, formerly the Tokyo Motor Show, which is opening this week for the first time in four years.

Japanese automakers, most prominently Toyota, have been more vocal than their Western peers about the challenges EVs face in the near term, including high costs, resource crunches and limited charging infrastructure.

In China, the world’s largest car market by vehicle sales, Western and Japanese companies face a host of local challengers and an EV price war.

While the early stages of the EV revolution shake out, Toyota and others have been leaning on hybrid vehicles as a bridging technology and studying the operations of front-runners including Tesla and China’s BYD. Toyota’s current CEO, Koji Sato, has said the carmaker will accelerate development of parts and manufacturing methods optimized for EVs.

At the Tokyo event, Japanese automakers showcased an array of concept EVs, many of which aren’t due in showrooms until the latter half of the decade.

Toyota displayed two EV concept cars due for release after 2026, as well as an electric pickup truck and a version of its Land Cruiser expected to launch within the next few years. Honda Motor’s joint venture with Sony showed off a prototype of its Afeela EV due to be delivered in 2026.

The handful of foreign automakers at the show—including BYD, Mercedes-Benz and BMW—all showed electric models that consumers can buy today, at least in some countries.

With their slower rollouts, Japanese brands await judgment on whether they failed to catch the wave in time or correctly read the general population’s readiness to make the EV shift.

One favorable sign for Toyota: Its head of sales in North America said recently the market for hybrids is “smoking hot” and the company is trying to make as many of the vehicles as possible. Last month, Toyota had a little more than a week’s worth of Prius hybrids in stock, compared with more than two months’ supply of its electric SUV, the bZ4X.

“I have continued to say what I see as reality,” said Toyoda. Someone needs to convey to the industry what will make car buyers most happy, he said, and “if regulations are created based on ideals, it is regular users who are the ones who suffer.”

EV sales rose 49% globally in the first half of this year, down from the previous year’s 63% growth, according to market-research firm Canalys. Of all EVs, 55% were sold in China, where foreign automakers are increasingly being wedged out by local manufacturers.

In the U.S., some dealers say the first wave of buyers willing to try an EV has passed and remaining buyers are deterred by high sticker prices and the limited range of many EV models.

GM said last week it was delaying the opening of an electric pickup truck factory in Michigan, citing “evolving EV demand.” A few days before that, The Wall Street Journal reported that Ford Motor was considering cutting a work shift at the plant where it builds its electric F-150 Lightning pickup as demand for the truck falters.

Toyoda said the concept vehicles at the Japan show were the product of Japanese automakers taking time to work with battery makers and think about what is possible in EVs. He said the Japanese industry’s strength in the EV era will come from practical car making “over a long period of time and from experiences of failure.”

German luxury-car maker says country’s auto industry will ‘fight’ a tariff war

German carmakers will “fight” any potential tariff war between Brussels and Beijing, according to the chief financial officer of Porsche, one of the handful of European brands that does not manufacture cars in China.

Tensions have been rising between Beijing and Brussels after the EU last month announced an anti-subsidy probe into Chinese electric vehicles, warning that Europe was about to be “flooded” by artificially cheap cars.

“As a strong German automotive community, we want to fight and will fight against [any new tariffs],” said Porsche’s chief financial officer Lutz Meschke on Tuesday. He said the EU’s move was “not very helpful” for the bloc overall, but especially not for Germany, which relies heavily on exports to China.

German carmakers make a large chunk of sales and profits in the country, with Chinese sales accounting for a third of BMW’s total car sales last year, and almost 40 per cent for Mercedes-Benz and Volkswagen.

The EU’s decision to launch an investigation was widely seen as a win for France, as carmakers such as Stellantis and Renault have a far smaller presence in China than German rivals.

Premium brands such as Porsche are relatively rare exporters of cars to China. Most foreign carmakers, including parent company Volkswagen’s eponymous brand, have shifted to producing the majority of vehicles sold in China locally.

Porsche, which makes roughly a third of its sales in China, said the number of delivered cars in the country was down 12 per cent in the first nine months of the year, compared to the same period in 2022, as recovery in the world’s largest market for cars lagged.

Meschke said executives had visited the country last week to discuss strategies with dealers, explaining that a renewed focus on “pricing rather than volumes” had been well received by vendors of the luxury car.

The company’s blueprint for China included associating it with the “transition to electrification” with investments in exclusive charging hubs and community centres for Porsche owners in big cities.

Porsche on Tuesday said revenues rose 13 per cent to €30.1bn in the first nine months of the year, while group operating profit grew 9 per cent to €5.5bn. The Stuttgart-based company is preparing to launch four new models next year, including an electric Macan.

So far, Apple has pitched its upcoming Vision Pro mixed-reality headset as a tool for working and enjoying various forms of entertainment. But inside the company, employees have also discussed another, more specialized use of the product as a way to diagnose and treat mental health issues, according to people with direct knowledge of the matter.

Such features would tap the device’s array of cameras and sensors to measure a person’s facial expressions, using them to detect depression, anxiety, stress or post-traumatic stress disorder, the people said. The Vision Pro could display images and sounds that might improve the wearer’s emotions, one of the people said. Various rules restrict companies from marketing medical functions in their devices without an OK from regulators. Over time, Apple has received clearance from regulators for health features in the Apple Watch—such as the ability to detect an irregular heart rhythm—which has broadened its appeal beyond a mere fashion accessory.

• Apple has explored whether Vision Pro could help treat mental health issues

• Outward-facing cameras could detect changes in movement

• Eye-tracking cameras could measure emotions, screen for heart conditions

Among the ideas employees have discussed for the Vision Pro is using its eye-tracking features and external cameras to measure a person’s affect, a psychological term referring to how a person expresses feelings or emotions, the people with knowledge of the matter said. A “flat affect” or emotionless expression can be a sign that a person has schizophrenia, autism, depression, brain damage or even PTSD, for example. Members of Apple’s Vision Products Group, including its leader, Mike Rockwell, have devoted extensive time to discussing the healthcare possibilities of the headset and have hired health experts to explore such features for the device, one of the people said.

Therapeutic functions could be especially important in the case of Vision Pro, a product that will initially cost $3,500—14 times the price tag of the cheapest Apple Watch.

The idea of using headsets to treat mental health disorders isn’t a new one. For years, researchers have studied the use of virtual reality headsets to diagnose and treat phobias and PTSD in patients—for example, by exposing military veterans to combat simulations.

Joe Jerome, a visiting professor at the University of Tampa who previously worked on augmented reality and VR policy at Meta Platforms, said the new sensors available on the latest headsets has made it easier to explore health and wellness uses for the devices.

“Without question, health and wellness use cases are really important to consumers of a whole bunch of different demographics,” Jerome said. “Could this boost sales? Sure, but a cheaper headset does it better.”

Multiple people who have worked on Vision Pro over the years said teams inside Apple have extensively discussed or explored health, wellness and fitness features as recently as this year. It couldn’t be learned whether Apple will include mental health features in the initial Vision Pro, which it has said will go on sale next year, or in future models. When the company announced the headset in June, it didn’t demonstrate health, wellness and fitness uses for the product, with the exception of a meditation experience.

An Apple spokesperson declined to comment.

Apple has shown a broader interest in exploring functions in the Apple Watch and iPhone to improve mental health. Earlier this year, it released new versions of its Health and Mindfulness apps that allow users to log their feelings and receive insights on their state of mind. Some of those features came about after Apple partnered with the University of California, Los Angeles, on a three-year study beginning in 2020 that involved thousands of participants using their Apple devices to track their physical activity, heart rate, sleep and other daily routines.

In 2019, Apple CEO Tim Cook told CNBC that the company’s “greatest contribution to mankind” would be related to health. Former Apple employees who worked in its health group said healthcare is one of the few industries with the size and scale to significantly move the needle on Apple’s revenues, assuming the company’s products could eventually play a substantial role in delivering healthcare services or related functions like billing for those services.

The Information previously reported that Apple had built demonstrations of fitness and wellness apps that guided users in the practice of tai chi and yoga while using the headset’s cameras to measure body movements and breathing. Former Apple employees who worked on the Vision Pro said the company explored using the Vision Pro to enhance the experience of using a rowing or cycling machine.

Any features that Apple claims can diagnose or treat physical or mental health issues would need to undergo clinical studies and have the clearance or approval of health regulators, they said. For instance, the U.S. Food and Drug Administration has cleared the company’s claims that the Apple Watch can detect atrial fibrillation or irregular heart rhythms, which can be a precursor to blood clots, strokes or heart failure.

Apple employees are concerned about the legal liability of making health-related claims, which could limit the scope of these features. For example, when wearers use the electrocardiogram app on the Apple Watch, the app tells them the product can’t check for heart attacks. When they activate the blood-oxygen app, it notes that the measurements aren’t intended for medical use.

Researchers have also begun examining whether wearable consumer devices could end up contributing to health anxiety for the people who wear them and encourage unnecessary visits to doctors’ offices. In 2020, researchers at the Mayo Clinic published a paper about a study of 264 patients who had sought medical treatment after receiving alerts from their Apple Watches about abnormal pulses. Only 11.4% of them received “clinically actionable cardiovascular diagnoses.”

Pupil Dilation

Not everyone inside Apple is optimistic about the prospects of using Vision Pro to treat mental health issues. Some people involved in Apple’s health efforts were skeptical about whether the devices could be as effective as other treatments, such as medicine, and cautioned that such features might never materialize.

Still, those doubts haven’t stopped Apple from brainstorming health-related uses for the headset.

Its employees have also discussed using the Vision Pro to sense weight fluctuations in a person’s body and to evaluate a person’s movements over time; the latter information could be used to screen for ailments such as Parkinson’s disease, the people said. In the near term, those functions are unlikely to appear on the headset. Apple cut full body tracking from the Vision Pro several years ago because engineers couldn’t make it reliable enough (The Information previously reported that Apple told developers full-body tracking wouldn’t be available when the Vision Pro ships next year.).

Another idea the team has discussed is using the headset’s eye-tracking cameras to detect pupil dilation, which could provide a clue to a person’s mood, one person who worked on the device said. The device’s infrared cameras could also detect swelling in the blood vessels of the eyes, a possible early sign of heart failure, another person said.

Inside Apple, mental health is among four pillars of the company’s overall health ambitions, along with nutrition, exercise and sleep, according to former Apple employees involved in its health efforts.

For years, Apple health employees have discussed ways to use the iPhone’s front-facing camera and sensors to track and improve people’s moods, though such features have yet to materialize. If they do emerge in the future, Apple would likely record and analyze users’ data on their devices instead of uploading that information to the cloud, to adhere to its own privacy standards, former employees said.

Other Apple health employees have explored how a user’s app usage and the words they type can be analyzed to detect early signs of some forms of dementia such as Alzheimer’s disease. In 2021, for example, Apple announced a partnership with neuroscience company Biogen to examine how the Apple Watch and iPhone could monitor cognitive performance and help detect a decline in cognitive health.

Last month, Biogen told MobiHealthNews it was pulling out of the study due to a change in its research and development priorities. At the time, Biogen noted that the initial results of sensor data gleaned from Apple devices showed that they could “reliably measure cognition and behavior in real-world unsupervised settings.”

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