Morgan Stanley is marketing a $5 billion debt package for xAI, the artificial intelligence startup owned by Elon Musk, sources told Reuters. The offering includes both bonds and two loan options—one floating-rate term loan priced at 97 cents on the dollar with a 700 basis point spread over the SOFR benchmark, and a fixed-rate alternative set at 12%. This move comes as xAI simultaneously pursues a $20 billion equity raise, which could value the company between $120 billion and $200 billion. The financing push occurs as tensions between Musk and U.S. President Donald Trump spill into the public sphere, potentially complicating investor sentiment.
In an unusual move, Morgan Stanley is pursuing a “best efforts” approach, meaning it is not guaranteeing the full raise nor committing its own capital—marking a cautious departure from previous high-profile deals. This method reflects broader banking prudence in a volatile macroeconomic environment. Investor meetings began last week, during which xAI’s financials were previewed. The decision is also shaped by lessons from 2022, when Morgan Stanley and other banks were burdened with $13 billion in debt from Musk’s acquisition of Twitter, now X.
Banks involved in the Twitter deal were unable to offload the debt for over two years, due to rising interest rates and Musk’s internal restructuring of the platform. Only recently did they manage to sell the debt, helped by an uptick in X’s performance and engagement surrounding the U.S. elections. This experience appears to have made banks more cautious, opting for limited exposure in the xAI deal despite growing investor enthusiasm for AI-related companies.
Investor interest in xAI is being fueled not just by the AI boom, but also Musk’s previous influence in political and economic spheres—particularly during Donald Trump’s resurgence. However, Musk’s public split with Trump has cast uncertainty over his ventures’ future, particularly regarding potential federal contracts or funding. This new political distance may prompt investors to demand higher premiums to compensate for increased risk.
xAI’s ongoing fundraising push aims to secure a massive $20 billion equity round. While discussions have floated valuations upwards of $200 billion, sources say estimates vary. Earlier, Musk considered merging xAI with social platform X to strengthen financial leverage, but that idea has since been shelved. As the political landscape shifts and investor caution mounts, xAI’s success in securing capital—both debt and equity—will be a key test of Musk’s enduring market pull.
Source: Reuters