Elon Musk’s xAI Nears $5 Billion Debt Raise Despite Tepid Investor Interest

Elon Musk’s artificial intelligence startup, xAI, is on course to secure $5 billion in fresh debt financing led by Morgan Stanley, even as investor demand fell short of expectations. The deal, which consists of a floating-rate term loan, a fixed-rate loan, and secured bonds, is set to be allocated to investors on Wednesday. While Morgan Stanley is spearheading the effort, it did so on a “best efforts” basis—meaning it didn’t guarantee the sale or commit its own capital. Neither xAI nor Morgan Stanley provided immediate comments.

Investor response to the offering was modest, with orders covering only about 1.5 times the amount available—lower than the typical 2.5 to 3 times seen in similar high-yield deals. The floating-rate portion will yield 700 basis points above the Secured Overnight Financing Rate, while the fixed-rate loan and bonds are expected to offer roughly 12% yields. This higher yield reflects xAI’s unrated status and lack of a profitability track record, raising concerns about financial transparency and risk.

Some investors reportedly declined to participate in the debt offering. One pointed to Musk’s controversial $44 billion acquisition of Twitter (now X) in 2022, where banks were left holding $13 billion in debt due to a lack of secondary buyers. That legacy of financing risk continues to influence investor caution around Musk-led deals. xAI’s debt remains unrated, and its financial metrics are largely undisclosed, adding to the hesitancy.

Despite this, the company managed to sell the full debt package, though it did not generate overwhelming demand. The relatively cool reception contrasts with typical high-yield market appetite and underscores the market’s cautious view of Musk’s ventures outside of Tesla and SpaceX. The pricing reflects both the potential upside and the uncertainty surrounding a young company in a competitive AI space.

In parallel to the debt raise, xAI is also pursuing equity financing that could value the company at over $120 billion, with some backers valuing it as high as $200 billion. This dual-track fundraising suggests that xAI is aggressively building its war chest to compete with leading AI players. However, investor wariness may signal the need for greater transparency and profitability benchmarks in future funding rounds.

Source: Reuters