Elon Musk’s xAI Debt Raise

By Matt Tracy, Echo Wang and Davide Barbuscia

NEW YORK (Reuters) – Elon Musk’s xAI is on track to close on a $5 billion debt raise led by Morgan Stanley, despite tepid investor demand, according to two people familiar with the matter.

The $5 billion debt sale includes a floating-rate term loan, a fixed-rate loan, and secured bonds, which will be allocated to investors on Wednesday. The two sources requested anonymity due to the private nature of the deal. xAI did not immediately respond to a request for comment, and Morgan Stanley declined to comment.

The floating-rate loan will be offered at an interest rate of 700 basis points over the Secured Overnight Financing Rate, a benchmark used for pricing bond deals. The fixed-rate loan and secured notes are expected to yield approximately 12%.

As of Monday, the average yield-to-maturity on high-yield bonds was 7.6%, according to the ICE BofA High Yield Index. Musk’s AI venture has to pay significantly higher rates since xAI and its debt are unrated, leaving investors with limited visibility into the company’s finances and increasing risk.

Three bond investors offered the debt indicated to Reuters they chose not to invest. One investor mentioned that xAI has not turned a profit yet and the debt remains unrated. They expressed caution given Musk’s previous financing of his $44 billion acquisition of social media giant X (formerly Twitter) in 2022. The banks that loaned him $13 billion for that deal had to hold onto the debt for two years as they could not offload it.

This xAI offering was reported on June 2, around the same time Musk and former U.S. President Donald Trump exchanged barbs on social media. The debt offering did not generate extensive interest from high-yield and leveraged loan investors, according to five individuals familiar with the deal.

Even though the debt was fully sold on time, it experienced modest demand, with investors placing orders for about 1.5 times the available debt. Typically, similar junk bond deals attract orders for 2.5 to 3 times the amount being offered.

In addition to the debt sale, xAI is reportedly in talks to raise approximately $20 billion in equity, valuing the company at over $120 billion, with some investors estimating valuations as high as $200 billion.