Morgan Stanley seeks debt buyers for Musk-owned xAI after Trump feud

Mint

11 hours ago

Morgan Stanley is reaching out to a large pool of investors to strengthen demand for a $5 billion debt sale for Elon Musk's artificial intelligence startup xAI Corp., a deal that offers a window into the fallout from the billionaire's feud with US President Donald Trump.
When Morgan Stanley launched the debt offering early last week, it already had more than $3.5 billion in orders. Some investors took that as a sign that the deal would soon be oversubscribed, a goal that has been easily exceeded for other Musk-related offerings, reported Bloomberg.
As of Monday, though, demand had only risen to around $5 billion, and the bank began reaching out to smaller lenders who had not been given access last week, according to people familiar with the deal.
The firm still intends to finalise the investor list by 17 June as planned. Bloomberg said that banks typically want demand to be substantially higher than the actual deal size so they have more flexibility on pricing and terms.
The effort to borrow money for xAI is an early indication of how the feud between Trump and Musk might hit Musk's broader network of private companies, which includes SpaceX and Neuralink.
The market value of his biggest company, Tesla Inc., has already fallen $42 billion since last Thursday when Musk and Trump took aim at each other on social media, recovering in the last couple of days from a massive downturn as tensions between the two parties eased, reported Bloomberg.
Some potential lenders told Bloomberg that they were initially drawn to the debt offering, in part because of Musk's good relationship with Trump, but are now approaching it with more caution because of the feud. Trump said last week that he would consider ending government contracts with Musk's companies.
The debt package includes a floating-rate term loan, a fixed-rate term loan, and senior secured notes. According to Bloomberg sources, official price talk set the yield of about 12% on the notes and fixed-rate loans.
Sources told Bloomberg that the floating-rate loan is being discussed at 7 percentage points above the Secured Overnight Financing Rate and a discounted price of 97 cents on the dollar.
In meetings on Thursday, investors who were willing to write checks of at least $50 million were allowed to view limited statistics about the company, including revenue, earnings, cash flow and projections, Bloomberg previously reported.
The figures showed that the company is spending far more than it is earning. But that had not dimmed enthusiasm about a company operating at the centre of the fastest-growing part of the technology industry. Investors were told last week that the company was worth $80 billion at the end of March, up from $51 billion at the end of 2024, reported Bloomberg.
Credit investors were particularly excited because it offered them a rare opportunity to get exposure to the AI industry, which is generally only accessible to equity investors.
This is all a very different situation from a few months ago, when Morgan Stanley was selling some of the remaining debt from Musk's acquisition of X. The bank was able to easily unload the loans as Musk's relationship with Trump helped attract buyers. The value of those loans, which fell to as low as 95 cents on the dollar after the feud broke out on Thursday, have recovered to nearly 97 cents, according to Bloomberg-compiled data.