Morgan Stanley is marketing a $5 billion debt package, including bonds and two loans, for Elon Musk’s artificial intelligence company xAI, according to sources familiar with the matter. The move comes during escalating tensions between Musk and U.S. President Joe Biden, adding complexity to the fundraising efforts.
Last week, Morgan Stanley began discussing a floating-rate term loan B, priced at 97 cents on the dollar, with an interest rate set at 700 basis points above the SOFR benchmark. A second financing option offers a fixed rate of 12%, though both structures are subject to investor demand and may change as discussions progress. Preliminary financial details were shared with investors during a recent meeting.
Unlike prior Musk-related transactions, Morgan Stanley is approaching this deal on a “best efforts” basis, meaning it will not guarantee the full issue volume or commit its own capital. This cautious stance reflects a more conservative lending approach amid uncertain macroeconomic conditions. The bank’s restraint follows its experience with Musk’s $44 billion acquisition of Twitter (now X) in 2022, when seven banks led by Morgan Stanley were left holding $13 billion in debt for over two years after the Federal Reserve raised interest rates.
Banks typically offload such loans to investors soon after deals close, but the X debt remained on their books until early 2024. Improved financial performance at X, bolstered by increased platform traffic and Musk’s proximity to former U.S. President Donald Trump, finally allowed banks to sell the debt. Investor interest was also fueled by growing enthusiasm for artificial intelligence investments and the potential political influence tied to Musk’s ventures.
In parallel with the debt sale, xAI has been in discussions to raise around $20 billion in equity funding. Depending on negotiations, the company’s valuation could range from over $120 billion to as much as $200 billion, according to various sources. An earlier plan to merge xAI with social media platform X was ultimately abandoned.
However, recent political developments have complicated Musk’s fundraising prospects. A public rift between Musk and Trump has emerged, potentially jeopardizing federal contracts or grants to Musk’s private companies. This political uncertainty could dampen investor appetite for xAI’s debt or lead to demands for higher risk premiums.
Morgan Stanley and xAI declined to comment on the ongoing negotiations.