Matt Tracy, Echo Wang, Davide Barbuscia
NEW YORK (Reuters) – Elon Musk’s Xai is getting a $5 billion debt hike on track by Morgan Stanley, led by Morgan Stanley, according to two people familiar with the issue.
The two people said the $5 billion debt sale will be allocated to investors on Wednesday, asking them not to be identified as the transaction is private, and that the $5 billion debt sale will be allocated to investors, including standard loans, fixed-rate loans and secured bonds. Xai did not immediately respond to requests for comment while Morgan Stanley declined.
The Xai offering, reported on June 2, as Musk and US President Donald Trump swapped barbs on social media, had not received overwhelming attention from high-yield and leveraged lending investors, five people said they explained the deal.
Floating rate loans are offered at a 700 basis points interest rate across protected overnight financing rates, benchmark rates used to price bond transactions, while fixed-rate loans and secured notes pay a yield of around 12%.
According to the Ice Bofa High-Hight Index, the average yield of high-yield bonds was closed at 7.6% from maturity. Musk’s AI companies have to pay large amounts as Xai and its debts are not yet rated, and investors rarely recognize the company’s finances and higher risks.
Three bond investors who were provided with debt told Reuters they refused to invest. One of these investors noted that Xai has not yet made a profit and that its debts have not been rated. They were particularly silent when they funded the $44 billion acquisition of social media giant X, known as Twitter, in 2022.
The debt was sold completely and on time, but all five said they received little demand from investors. According to the first two people who were explained about the transaction, the investors submitted orders that were about 1.5 times the available debt. Most similar junk bond trading typically attracts orders of 2.5 to 3 times the loans and bonds offered, people said.
Unlike Musk’s debt deal, when he bought Twitter, Morgan Stanley, according to one person familiar with the terms, called the “best effort” deal, which did not guarantee that it would sell or commit its own capital to the deal.
With the Twitter acquisition, the banks will ultimately make money from debt, and there will be little after a few months after Trump won the White House and the growing influence of masks in Washington.
