Morgan Stanley offers a $5 billion in bonds based on xAI

Morgan Stanley is marketing a $5 billion worth loan package for xAI, Elon Musk’s artificial intelligence startup, according to sources cited by Reuters. The offering reportedly involves bonds and loans and began last week.

The US bank is proposing two sets of terms to potential lenders. One structure is a floating-rate term loan B, priced at 97 cents on the dollar with a variable interest rate of 700 basis points over the Secured Overnight Financing Rate (SOFR). 

The alternative package includes fixed-rate bonds and loans offering a 12% yield. According to individuals familiar with the negotiations, both options are subject to change based on investor appetite.

Bond orders commence, but interest is waning

According to recent updates, orders had reached approximately $5 billion by the start of this business week. The figure matches the offering size, but it falls short of the level of oversubscription banks seek to secure.

Initially, the offering drew more than $3.5 billion in interest, and insiders had expected that demand would only go up. However, as of Monday, Morgan Stanley had begun approaching smaller lenders that were previously excluded from early discussions. The investor list is expected to be finalized by June 17, in track with the original timeline. 

Morgan Stanley said it would not commit its own capital or guarantee the deal, but it promised to look for a “best efforts” structure. The bank is seemingly walking away from the kind of overexposure banks faced in 2022 when they financed Musk’s $44 billion acquisition of Twitter, now known as X.

That deal forced a consortium of seven banks led by Morgan Stanley to provide $13 billion in debt. Following interest rate hikes by the Federal Reserve and Musk’s restructuring of the social media platform, banks were unable to offload the debt and held it on their balance sheets for more than two years, an unusually long period for such financing.

Sources familiar with the deal told Reuters that Morgan Stanley is trying to avoid a repeat scenario by structuring the deal based on investor interest rather than guaranteed underwriting.

xAI shows heavy losses

Investor meetings held last Thursday revealed xAI posted a loss of $341 million before interest, taxes, depreciation, and amortization in the first quarter of this year. Yet, executives predicted that the company could reach breakeven status in the coming years. 

Investors writing checks of at least $50 million were allowed to see internal metrics, including cash flow, revenue, and earnings projections.

xAI was recently valued at $94 billion, up significantly from $51 billion at the end of 2024. The valuation went up when Musk merged xAI with his social media platform X into a new entity known as XAI Holdings. 

In March, the combined group was valued at $113 billion, with xAI accounting for $80 billion and X valued at $33 billion.

That merger came with little outside consultation, with only a small circle of the Tesla CEO’s confidants involved in the decision-making process. 

About a week ago, xAI announced it was preparing for a $300 million secondary share sale, known as a tender offer. The offering opens the door for employees to sell shares to outside investors, providing liquidity while validating the March valuation of the combined company. 

According to individuals close to the matter, a larger capital raise through a new equity offering could also be in the works.

Still, some participants are worried about the fragmented relationship between Musk and President Donald Trump. 

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