Elon Musk’s artificial intelligence startup, xAI, is raising the stakes in its $5 billion debt offer as it faces underwhelming investor appetite.
According to a source close to the matter, xAI is now offering a 12.5% fixed yield on $3 billion in bonds and an additional 12.5% on a $1 billion term loan.
The same rate also applies to a separate $1 billion term loan B, though this one is being priced at a steep discount, just 96 cents on the dollar, and floats at 725 basis points above the Secured Overnight Financing Rate (SOFR).
That’s a premium when compared to the average 7.6% yield for junk-rated bonds, based on the ICE BofA High Yield Index.
For a deal of this size, it’s rare to see such aggressive pricing without corresponding investor enthusiasm. The deadline for investor commitments, originally set for Tuesday, was pushed to Friday. Allocations are expected to follow a day later.
What’s behind the yield hike is the weak response. Reports reveal that the offering has drawn a lukewarm reception, with order books only 1.5 times oversubscribed.
For comparison, similar high-yield offerings typically see demand exceed supply by at least 2.5 to 3 times. That gap sends a message, investors want more compensation for the risks they perceive.
xAI is an early-stage firm with no credit rating and limited public financials. It’s pushing to scale in an AI space already dominated by names like OpenAI, Anthropic, and Google DeepMind.
That’s an expensive goal, and one that many see as high-risk, even with Musk’s name attached.
Complicating matters further, this debt raise isn’t backed with the same kind of financial support Musk enjoyed during his 2022 Twitter acquisition.
Then, Morgan Stanley underwrote the deal. This time, the bank is taking a “best efforts” approach, meaning it’s under no obligation to sell the full amount or risk its own capital. That alone signals doubt about investor appetite.
The capital raise was first reported earlier this month with a very public online feud between Musk and former U.S. President Donald Trump. For some investors, that adds unnecessary political noise to an already complex financial proposition.
An analyst said, “When you’re offering 12.5% to raise money in today’s market and still struggling to close the books, that tells you everything you need to know.”
xAI is also said to be in talks for a much larger $20 billion equity raise, with valuation targets between $120 billion and $200 billion. But if this debt raise is any indication, the market may need more convincing before buying into those numbers.
Neither xAI nor Morgan Stanley has issued a comment, despite multiple requests.
