On June 18, Reuters reported that people familiar with the matter said that despite tepid investor demand, elon Musk’s artificial intelligence company, XAI, is still expected to complete a $5 billion debt financing led by Morgan Stanley. The debt includes floating-rate term loans, fixed-rate loans and covered bonds.
Xai’s debt offering has reportedly not attracted much interest from investors in high-yield and leveraged loans. Floating-rate loans would cost 700 basis points more than guaranteed overnight financing rates, while fixed-rate loans and covered notes would yield about 12 per cent. Because XAI and its debt are not yet rated and investors have limited knowledge of the company’s financial position and are at higher risk, many bond investors have declined to invest.
Despite this, Xai’s issue was sold in full and on time, with investors submitting about 1.5 times the number of orders. People close to the situation said that most similar junk bond issues typically attract orders equivalent to 2.5-3 times the issuance. Moreover, unlike Musk’s debt deal when it bought Twitter, Morgan Stanley is not promising to sell much or put in its own capital, making it an“All-or-nothing” deal.
As well as debt financing, XAI is in talks to raise about $20bn in equity, valuing it at more than $120bn, with some investors offering valuations as high as $200bn.