Audio By Carbonatix
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, which includes a floating-rate term loan, a fixed-rate loan and secured bonds, will be allocated to investors on Wednesday, the two people said, asking not to be identified because the deal is private. xAI did not immediately respond to a request for comment while Morgan Stanley declined.
The xAI offering, which was reported on June 2 as Musk and U.S. President Donald Trump traded barbs over social media, did not receive overwhelming interest from high-yield and leveraged loan investors, said five people briefed on the deal.
The floating-rate loan will be offered with an interest rate of 700 basis points over the Secured Overnight Financing Rate, a benchmark rate used to price bond deals, while the fixed-rate loan and secured notes will pay a yield of roughly 12%, the two people said.
The average yield-to-maturity on high-yield bonds closed Monday at 7.6%, according to the ICE BofA High Yield Index.
Musk's AI company has to pay significantly more since xAI and its debt are not yet rated, giving investors little visibility into the company's finances and higher risk.
Three bond investors who were offered the debt told Reuters they declined to invest. One of these investors noted that xAI has not yet turned a profit, and the debt is not rated.
They were especially reticent given Musk's track record when he financed his $44 billion acquisition of social media giant X, known at the time as Twitter, in 2022.
The banks that loaned him $13 billion to close the deal were forced to hold that debt on their balance sheets for two years because they could not offload it.
While the debt sold in full and on time, it received modest demand from investors, all five people said.
Investors submitted orders for roughly 1.5 times the amount of debt available, according to the first two people briefed on the deal.
Most similar junk bond deals have typically attracted orders for 2.5 to 3 times the loans and bonds being offered, the people said.
Unlike Musk's debt deal when he acquired Twitter, Morgan Stanley did not guarantee how much it would sell or commit its own capital to the deal, in what is called a "best efforts" transaction, according to one person familiar with the terms.
In the Twitter acquisition, the banks ended up making money on the debt, selling it with little-to-no discount months after Trump won the White House and Musk's influence in Washington grew.
Apart from selling debt, xAI has also been in talks to raise about $20 billion in equity, valuing the company at more than $120 billion, with some investors placing valuations as high as $200 billion, Reuters reported last week.
Latest Stories
-
Nkrumah Never Dies: Celebrating the visionary who awakened a continent
48 minutes -
Hassan Ayariga calls for Ghanaian ownership in strategic investment deals
48 minutes -
Black Stars: Thomas-Asante receives late call-up for September-October games
2 hours -
NPP Techiman South demands immediate release of detained Nurse Salomey Awiti Baffoe
2 hours -
‘Let’s stop the politics’ — Dafeamekpor calls for united fight against drug trafficking
2 hours -
Chief Justice Baffoe-Bonnie leads new 11-member Council for Legal Education and Training Board
2 hours -
Decades of silent diplomacy: Baba Issifu Kamara at 70
2 hours -
30% transport fare hike still on the table, talks resume Tuesday – GPRTU
2 hours -
KATH marks 70th anniversary with inter-directorate games
3 hours -
Black Stars: Godwin Attram replaces Desmond Ofei as assistant coach
3 hours -
Nkrumah never dies
4 hours -
CalBank ‘Abakade Promo’ rewards 5 customers with GH¢25,000 in first draw
4 hours -
Ecobank, Joy Business to host financial dialogue on green finance and inclusive agri-growth in Ghana
4 hours -
Nkrumah’s vision remains relevant to Ghana’s future — Mahama
4 hours -
Hitz FM announces Beach Rave for October 31
5 hours