New York: Morgan Stanley is currently marketing a $5 billion debt offering for Elon Musk-owned artificial intelligence startup xAI, comprising bonds and two loan tranches, according to sources familiar with the matter who spoke to Reuters. The financing push comes as tensions between Musk and U.S. President Joe Biden publicly escalate, potentially clouding the business climate around Musk’s ventures.
According to one of the sources, the bank began marketing a floating-rate Term Loan B last week, priced at 97 cents on the dollar with a variable interest rate of 700 basis points over the Secured Overnight Financing Rate (SOFR). A second structure is also being offered, combining a loan and bonds with a fixed rate of 12%. These terms are still preliminary and will ultimately hinge on investor demand.
In a shift from past high-profile Musk-related financings, Morgan Stanley is adopting a “best efforts” approach—meaning it is not committing its own capital or guaranteeing the full size of the offering. Such an approach reflects a broader sense of caution among banks operating in an uncertain macroeconomic environment.
The bank shared select financial information about xAI during investor meetings last week. While Morgan Stanley declined to comment and xAI did not immediately respond, sources say the offering has attracted significant interest.
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The restrained structure is partly informed by lessons from 2022, when Morgan Stanley and six other banks committed $13 billion in debt financing for Musk’s $44 billion acquisition of Twitter, now known as X. The banks were unable to offload that debt for over two years, particularly after the Federal Reserve began hiking interest rates and Musk began overhauling the company.
The recent improvement in X’s financial performance, particularly around heightened platform activity before and after the U.S. presidential elections, finally allowed banks to exit their positions earlier this year. Musk’s visible alignment with former President Donald Trump had fueled investor appetite for the X-related debt, especially among those seeking proximity to a potentially returning administration and the broader surge in interest for artificial intelligence exposure.
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xAI has also reportedly been in separate talks to raise about $20 billion in equity funding. Two sources said the company is targeting a valuation north of $120 billion, while others indicated figures as high as $200 billion had been discussed. Initial efforts to raise capital alongside a potential merger between xAI and X were ultimately shelved, according to the sources.
However, the shifting political dynamic between Musk and Trump—who are now reportedly at odds—could affect investor confidence. The fallout may reduce demand for the new debt or lead to higher risk premiums from cautious investors. It could also expose Musk’s businesses, many of which rely on federal contracts or grants, to increased scrutiny or potential funding risks.
