Elon Musk's xAI Seeks $5 Billion In Debt, Faces Lukewarm Demand — Even With 12% Yields On The Table: Report

Elon Musk’s AI venture, xAI, is reportedly on the brink of securing a $5 billion debt raise, led by Morgan Stanley, despite modest investor interest.

What Happened: The $5 billion debt offering—comprising a floating-rate term loan, a fixed-rate loan, and secured bonds—is scheduled to be allocated to investors on Wednesday, reported Reuters, citing sources. The sale, announced on June 2, failed to generate strong interest from high-yield and leveraged loan investors.

The floating-rate loan carries an interest rate of 700 basis points above the Secured Overnight Financing Rate, while the fixed-rate loan and secured notes are expected to yield around 12%, according to the report. This is significantly above the average yield-to-maturity for high-yield bonds, which stood at 7.6% as of Monday's close.

Investor orders were approximately 1.5 times the available debt, lower than the usual 2.5 to 3 times observed in similar junk bond deals. Unlike Musk’s debt deal for his Twitter acquisition, Morgan Stanley neither guaranteed the sale amount nor committed any of its own capital to the transaction, the report added.

xAI did not immediately respond to Benzinga’s request for comment.

SEE ALSO: Elizabeth Warren Says Billionaires Like Jeff Bezos And Elon Musk Will ‘Track Your Purchases’ If Allowed To Launch Stablecoins, And Stick You With The Bill When It ‘Blows Up’

Why It Matters: The debt raise comes amid a series of significant developments for xAI. The company is also in discussions to raise approximately $20 billion in equity, potentially valuing the company at over $120 billion. This follows the current $5 billion debt package.

xAI’s debt raise also raises concerns due to the company’s financial status and Musk’s track record. The company is not yet rated, providing investors with little visibility into its finances and posing a higher risk. This is compounded by Musk’s previous debt experiences, such as when he financed his $44 billion acquisition of social media giant X, known as Twitter at the time, in 2022.

• READ MORE: Elon Musk Warns US Faces ‘De Facto’ Bankruptcy If $37 Trillion Debt Not Tackled, Peter Schiff Says, ‘We Are Already Bankrupt’

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.