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Morgan Stanley Markets $5 Billion Debt Package for Elon Musk’s xAI Amid Political Tensions

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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.

Trump-Musk Rift Raises Regulatory Risks for Elon Musk’s Business Empire

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Elon Musk’s deteriorating political relationship with former President Donald Trump may expose his vast business empire to heightened regulatory scrutiny across multiple U.S. agencies. As political tensions escalate, the risk that regulators may more aggressively oversee Musk’s various companies has become a growing concern. Below is an overview of the key U.S. regulators with authority over Musk’s enterprises, and the potential challenges ahead:

Federal Communications Commission (FCC)
The FCC oversees the allocation of spectrum critical to SpaceX’s Starlink satellite internet service. In April, the FCC launched a review of its longstanding spectrum sharing rules, potentially affecting SpaceX’s access to expanded frequencies necessary to enhance its coverage. While the review aims to modernize spectrum usage, it may also result in stricter rules or delays for SpaceX, depending on the political climate and regulatory stance.

Food and Drug Administration (FDA)
The FDA regulates clinical trials for Neuralink, Musk’s brain implant company. While Neuralink has secured FDA approval for initial human trials, earlier safety concerns cited by the agency in 2023 remain relevant as trials progress. Any missteps or adverse events in ongoing studies could prompt the FDA to halt or delay the company’s development timeline.

Environmental Protection Agency (EPA)
SpaceX’s Starbase launch facility in Texas falls under the EPA’s jurisdiction for environmental compliance, particularly regarding wastewater discharge and environmental impact assessments under the National Environmental Policy Act. Rocket launches and tests, which have included multiple explosions, may invite further scrutiny, particularly if environmental groups or political adversaries exert pressure on federal agencies.

National Highway Traffic Safety Administration (NHTSA)
Tesla’s Full Self-Driving (FSD) technology remains under active investigation by NHTSA, especially regarding its performance under poor visibility conditions. The agency recently requested detailed information on Tesla’s robotaxi service set to launch in Austin, Texas, this month. Any regulatory findings could impact Tesla’s ability to scale its self-driving services.

Federal Aviation Administration (FAA)
The FAA proposed a $633,000 fine against SpaceX last year for license violations during launches. With ongoing investigations and the potential for future launch failures, the FAA holds significant leverage over SpaceX’s launch schedule and licensing requirements.

Securities and Exchange Commission (SEC)
Musk continues to face legal battles with the SEC, including litigation related to his 2022 acquisition of Twitter (now X). The regulator is also reportedly investigating Neuralink, raising additional legal exposure. Any adverse findings could impact Musk personally as well as his companies’ access to capital markets.

Federal Trade Commission (FTC)
The FTC oversees data privacy and antitrust compliance for social media platforms, including X. The agency is currently investigating whether certain media watchdog groups coordinated advertiser boycotts of X, a situation Musk claims is anti-competitive. The FTC’s broader mandate to protect consumer privacy could result in further investigations, particularly regarding data protection for minors.

Political Climate Raises Stakes
While these agencies have long held authority over Musk’s operations, his prior friendly ties to Trump may have provided a degree of political insulation. The recent breakdown in their relationship removes that buffer, potentially leaving Musk more exposed to adversarial regulatory action depending on future election outcomes and shifting political alliances.

With businesses spanning electric vehicles, space exploration, telecommunications, brain-computer interfaces, and social media, Musk’s cross-sector reach makes him uniquely vulnerable to regulatory actions from multiple federal agencies simultaneously.

Kenya’s Deputy President Rigathi Gachagua Impeached While Hospitalized

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Kenya’s Deputy President Rigathi Gachagua, commonly known as “Riggy G,” was removed from office by Kenyan senators during his impeachment trial, despite his absence due to hospitalization. Gachagua had been set to defend himself in the Senate after pleading not guilty to 11 charges the previous day. However, his lawyer informed the Senate that Gachagua was in The Karen Hospital suffering from chest pains, requesting a postponement of the proceedings.

The Senate, determined to proceed, voted to continue the trial without him. Gachagua’s defense team walked out in protest, leaving the proceedings to unfold in his absence. The Senate’s refusal to delay the trial until Saturday, the last legally permissible day, highlighted their resolve to finalize his impeachment, a move several months in the making after Gachagua fell out with President William Ruto.

Last week, the lower house of parliament, the National Assembly, voted overwhelmingly to impeach Gachagua, paving the way for his trial in the Senate. Gachagua, a prominent businessman from the influential Mount Kenya region, had attended the morning session but described the impeachment as a “political lynching.”

By Thursday evening, two-thirds of the Senate upheld five charges against Gachagua, including inciting ethnic divisions and violating his oath of office, effectively sealing his removal from office. He was cleared of six other charges, including corruption and money laundering. The historic impeachment means that Gachagua is now barred from holding any public office and will lose all exit benefits.

This decision comes just two years after Gachagua and President Ruto were elected on a joint ticket, and it marks the end of months of internal government strife. Tensions between the president and his deputy escalated in June when Gachagua publicly criticized the head of the intelligence agency for not properly informing Ruto about the scale of public protests against controversial tax hikes. Ruto was forced to withdraw the taxes and reshuffled his cabinet, bringing in members of the opposition.

Although Ruto has remained silent on his deputy’s impeachment, the move consolidates his control over the government. Gachagua had vowed to challenge the Senate’s decision before the vote took place.

Reports indicate that Gachagua, 59, is undergoing tests for heart-related issues, though he remains in stable condition according to a doctor cited by Reuters. Meanwhile, speculation has grown about who will replace him, with several high-profile names being floated, including Murang’a Governor Irungu Kang’ata, Kirinyaga Governor Anne Waiguru, Interior Minister Kithure Kindiki, and Foreign Affairs Minister Musalia Mudavadi.