Morgan Stanley has begun marketing a $5 billion debt package for Elon Musk's artificial intelligence startup xAI, as the billionaire entrepreneur seeks to fuel his AI ambitions despite recent political complications.
The bank is taking an unusually cautious approach with this transaction. Unlike previous deals with Musk, Morgan Stanley will not guarantee the issue volume or commit its own capital, instead structuring it as a 'best efforts' offering where the final size depends entirely on investor interest. This strategy reflects both broader economic uncertainty and lessons learned from the bank's experience with Musk's $44 billion Twitter acquisition in 2022, when Morgan Stanley and six other banks were stuck holding $13 billion in debt for over two years.
As of last week, Morgan Stanley began presenting investors with two financing options: a floating-rate term loan B priced at 97 cents on the dollar with a variable interest rate of 700 basis points over the SOFR benchmark, or alternatively, a combination of loans and bonds at a fixed 12% rate. These preliminary terms may adjust based on market response, with commitments due by June 17.
The debt offering comes at a particularly sensitive time for Musk. His recent public falling out with President Donald Trump has raised concerns about potential government actions that could impact his various businesses. This political tension has heightened the risk premium investors might demand for participating in the debt sale.
Beyond this debt financing, xAI has been pursuing approximately $20 billion in equity funding that could value the company between $120 billion and $200 billion. The AI startup, which was launched less than two years ago, has been investing heavily in computing infrastructure, including its massive 'Colossus' data center in Memphis that houses over 200,000 GPUs for AI training and inference.
Musk had initially explored raising funds in conjunction with merging xAI and his social media platform X (formerly Twitter), but that plan did not materialize. The current debt offering will likely help finance xAI's ambitious expansion plans as it competes with established AI leaders like OpenAI and Google DeepMind.