Musk's xAI on track to raise $5 billion in fresh debt, following modest demand

Elon Musk's xAI is on track to close on a $5 billion debt raise led by Morgan Stanley, despite tepid investor demand, according to two people familiar with the matter.
The $5 billion debt sale, which includes a floating-rate term loan, a fixed-rate loan and secured bonds, will be allocated to investors on Wednesday, the two people said, asking not to be identified because the deal is private. xAI did not immediately respond to a request for comment while Morgan Stanley declined.
The xAI offering, which was reported on June 2 as Musk and U.S. President Donald Trump traded barbs over social media, did not receive overwhelming interest from high-yield and leveraged loan investors, said five people briefed on the deal.
The floating-rate loan will be offered with an interest rate of 700 basis points over the Secured Overnight Financing Rate, a benchmark rate used to price bond deals, while the fixed-rate loan and secured notes will pay a yield of roughly 12%, the two people said.
The average yield-to-maturity on high-yield bonds closed Monday at 7.6%, according to the ICE BofA High Yield Index . Musk's AI company has to pay significantly more since xAI and its debt are not yet rated, giving investors little visibility into the company's finances and higher risk.
Three bond investors who were offered the debt told Reuters they declined to invest. One of these investors noted that xAI has not yet turned a profit and the debt is not rated. They were especially reticent given Musk's track record when he financed his $44 billion acquisition of social media giant X, known at the time as Twitter, in 2022. The banks that loaned him $13 billion to close the deal were forced to hold that debt on their balance sheets for two years because they could not offload it.
While the debt sold in full and on time, it received modest demand from investors, all five people said. Investors submitted orders for roughly 1.5 times the amount of debt available, according to the first two people briefed on the deal. Most similar junk bond deals have typically attracted orders for 2.5 to 3 times the loans and bonds being offered, the people said.
Unlike Musk's debt deal when he acquired Twitter, Morgan Stanley did not guarantee how much it would sell or commit its own capital to the deal, in what is called a "best efforts" transaction, according to one person familiar with the terms.
In the Twitter acquisition, the banks ended up making money on the debt, selling it with little-to-no discount months after Trump won the White House and Musk's influence in Washington grew.
Apart from selling debt, xAI has also been in talks to raise about $20 billion in equity, valuing the company at more than $120 billion, with some investors placing valuations as high as $200 billion, Reuters reported last week.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Time of India

2 hours ago

• Time of India

Elon Musk faces pushback as Texas lawmakers urge delay of Tesla robotaxi launch

Elon Musk 's ambitious plans to launch Tesla 's robotaxi service in Austin this month have hit political resistance. A group of Democratic lawmakers from the Austin area has formally requested the company to delay the rollout until September, when new autonomous vehicle regulations are set to take effect in Texas. The lawmakers argue that waiting for the legislation to kick in would better serve public safety and help build trust in Tesla's self-driving technology . While Musk hinted at a tentative launch this Sunday, the lack of details has raised concerns about oversight and preparedness. Lawmakers cite safety and public trust concerns In a letter sent to Tesla on Wednesday, the group of Austin-based Democratic lawmakers urged the company to hold off until the new autonomous vehicle law comes into effect. They warned that an early launch could undermine public trust and compromise safety, especially without clear protocols in place. They asked Tesla to provide a detailed explanation of how it intends to comply with the upcoming legislation if it proceeds with the rollout as planned. What the new Texas law entails Currently, Texas allows autonomous vehicles to operate statewide, provided they meet basic registration and insurance requirements. The new law passed by the legislature which is expected to take effect in September, will require companies like Tesla to seek formal authorisation before launching driverless services . The law also grants state authorities the power to revoke permits if the vehicles are deemed a public danger, and mandates companies to provide emergency guidance for police and first responders. Tesla's quiet approach about the launch Tesla and Musk have so far offered limited details about the Austin robotaxi launch. Musk said it would begin with 10 to 20 Model Y vehicles operating in 'the safest' parts of the city, but has not revealed who the initial riders would be, how the service would be priced, or how remote monitoring would be handled. This opacity has added to the lawmakers' concerns and fuelled debate over whether the rollout is premature. High stakes for Tesla's future Musk has placed the future of Tesla heavily on its autonomous driving technologies, shifting focus from traditional EV sales to robotaxis and humanoid robots. Investors and analysts view the upcoming robotaxi rollout in Austin as a crucial step. The pushback from lawmakers, however, highlights the regulatory hurdles that could slow Tesla's momentum in a space already fraught with scrutiny. Will Tesla comply or proceed? It remains uncertain how Tesla will respond. While the lawmakers' letter carries political weight in Austin, Texas is a Republican-led state, and the new law has yet to be signed by the governor. Whether Tesla proceeds with the launch or chooses to delay voluntarily could shape both its public image and regulatory relationships moving forward.

The Hindu

2 hours ago

• The Hindu

Tesla invites select few to Texas robotaxi trial with front seat safety monitors

Tesla has sent out invitations to a small group of people to join the limited test of its robotaxi service in Austin, Texas, which is tentatively set to start on Sunday, according to posts and email screenshots on social media. The invitations said a Tesla employee will accompany riders in the front passenger seat, the posts showed. A successful trial in Austin will be crucial for Tesla, as car buyers shun the company following its CEO Elon Musk's embrace of hard-right politics in the U.S. and worldwide. The company has shifted from building a cheaper EV platform to robotics and artificial intelligence. Much of the company's valuation rests on that bet. Musk has said he will focus on safety in the trial, with humans remotely monitoring the vehicles. He has said he expects to be able to scale the robotaxi quickly. Tesla plans to deploy around 10 Model Y SUVs that run on a version of Tesla's full self-driving driver assistance software, Musk has said. The start could be delayed and the service might be limited or unavailable in bad weather. Riders have to be aged 18 or above to take a ride. "Tesla is rolling out the Robotaxi service extremely cautiously, which is good. Baby steps," posted Omar Qazi, an user with 635,100 followers who posts often about Tesla using the handle @WholeMarsBlog and received an invite. "Very much so," CEO Elon Musk responded. But commercialising autonomous vehicles is an expensive, risky process. Tesla and others such as Alphabet's Waymo and Amazon's Zoox have faced federal investigations and recalls following collisions. Industry experts have questioned the efficacy of Tesla's self-driving technology that depends mostly on cameras and AI, without redundant sensors such as lidar and radar, claiming fog, heavy rain, and glaring sunlight can hamper safety. On Wednesday, a group of Democratic lawmakers from the Austin area called on the company to delay the rollout until September, when a new state law governing autonomous vehicles takes effect. Users who confirm their presence in Austin can download Tesla's Robotaxi app, which they use to call a vehicle. "Through this exclusive preview, you'll have the opportunity to provide valuable feedback on our Robotaxi service," one of the screenshots showed. Reuters could not immediately verify the authenticity of the screenshots.

Economic Times

2 hours ago

• Economic Times

As Musk's 'robotaxi' rollout approaches, Democratic lawmakers in Texas try to throw up a roadblock

A group of Democratic lawmakers in Texas is asking Elon Musk to delay the planned rollout of driverless 'robotaxis' in the state this weekend to assure that the vehicles are safe. In a letter, seven state legislators asked Tesla to wait until September when a new law takes effect that will require several checks before autonomous vehicles can be deployed without a human in the driver's seat. Tesla is slated to begin testing a dozen of what it calls robotaxis for paying customers on Sunday in a limited area of Austin, Texas. "We are formally requesting that Tesla delay autonomous robotaxi operations until the new law takes effect on September 1, 2025," the letter from Wednesday, June 18, reads. "We believe this is in the best interest of both public safety and building public trust in Tesla's operations." It's not clear if the letter will have much impact. Republicans have been a dominant majority in the Texas Legislature for more than 20 years. State lawmakers and Republican Gov. Greg Abbott have generally embraced Musk and the jobs and investment he has brought to Texas, from his SpaceX rocket program on the coast, to his Tesla factory in Austin. The company, which is headquartered in Austin, did not responded immediately to a request for comment from The Associated Press. The law will require companies to secure approval from the state motor vehicles department to operate autonomous cars with passengers. That approval, in turn, would depend on sufficient proof that the cars won't pose a high risk to others if the self-driving system breaks down, among other reassurances. Companies would also have to file detailed plans for how first responders should handle the cars if there is a problem, such as an accident. The letter asked Tesla to assure the legislators it has met all the requirements of the law even if it decides to go ahead with the test run this weekend. The letter was earlier reported by Reuters. Musk has made the robotaxi program a priority at Tesla and a failure would likely be highly damaging to the company's stock, which has already tumbled 20% this year. Musk's political views and his affiliation with the Trump administration have drastically reduced sales of Tesla, particularly in Europe, where Musk's endorsement of Germany's far-right Alternative for Germany party in February's election drew broad condemnation. Tesla shares bottomed out in March and have rebounded somewhat in recent months. Much of the rise reflects optimism that robotaxis will not only be deployed without a hitch, but that the service will quickly expand to other cities and eventually dominate the self-driving cab business. Rival Waymo is already picking up passengers in Austin and several other cities, and recently boasted of surpassing 10 million paid rides. In afternoon trading Friday, Tesla shares were largely unchanged at $320.