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, 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 didn’t immediately respond to a request for comment while Morgan Stanley declined.
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%, said the two people, who were briefed on the deal.
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 hasn’t yet turned a profit and the debt isn’t rated and was 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.
The xAI offering, which was reported on June 2 as Musk and U.S. President Donald Trump traded barbs over social media, didn’t receive overwhelming interest from high-yield and leveraged loan investors, the five people briefed on the deal said.
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.
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.
(Reporting by Matt Tracy, Echo Wang and Davide Barbuscia, Additional reporting by Tatiana Bautzer, Editing by Dawn Kopecki and Chizu Nomiyama)
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