Distressed debt is often a good investment. As for collateral, Twitter itself is the only collateral in these loans. You are thinking of margin loans, and IIRC

Distressed debt is often a good investment. As for collateral, Twitter itself is the only collateral in these loans. You are thinking of margin loans, and IIRC Musk denied taking out margin loans. As it often is, distressed situations could be complex financially. For example, Musk might be lending money to Twitter to pay the banks' LBO loans. So anyone buying Twitter or taking posession of all or part of Twitter in a loan default would have to make sure there are no claims on twitter they don't know about.