Morgan Stanley's xAI debt sale side-tracked by Musk's beef with the president

The public fallout between Elon Musk and Donald Trump now threatens to upend a $5 billion debt offering launched earlier this week by Morgan Stanley for Musk’s artificial intelligence venture, xAI.

Even before Elon Musk and President Donald Trump fell out in public, selling debt for the tech mogul’s companies has always been tricky with Morgan Stanley. However, for xAI Corp., it was supposed to be different.

The Musk-Trump clash derailed Morgan Stanley’s xAI pitch

However, the escalating public feud between Elon Musk and Donald Trump — unfolding as a highly visible, back-and-forth conflict — will likely make the bankers’ job significantly more difficult.

With his history at institutions like Harvard and Columbia University, Trump has demonstrated a willingness to use unconventional tactics to set an example for those who challenge him. As a result, all of Musk’s companies, including xAI, could find themselves caught in the crosshairs.

Interestingly, investor sentiment is changing fast. Tesla shares fell 14%, and a trader said that one of xAI’s outstanding loans fell to 95 cents on the dollar from 99 cents before the spat went public. The price decline could signal trouble ahead for Morgan Stanley’s sale.

Additionally, the price of a loan for social media platform X, another of Musk’s companies affiliated with xAI in a larger enterprise, was trading down about 1.25 points as the battle between the two sides increasingly turned fierce online

How the clash affected the effort to sell the debt is unclear. So far, the buyers who expressed initial interest in the deal have not walked away, and the debt sale is not due to close until later this month, according to a person familiar with the matter.

By late Thursday, Musk indicated that he wanted to ease the tensions with Trump. Meanwhile, according to reliable sources, White House staff arranged a call between them to prevent further issues. 

A spokesperson for Morgan Stanley chose not to comment, and xAI did not reply to a request for comments made after regular business hours. 

Elon Musk revealed shifting his focus from politics to running his companies 

Elon Musk highlighted plans to sell $5 billion of debt for his artificial intelligence startup, xAI Corp., the latest in financing rounds across his business empire as the billionaire shifts away from politics and toward running his various businesses.

People familiar with early pricing discussions say Morgan Stanley is marketing the debt for xAI with a double-digit interest rate. The funding could enable Musk to increase spending on AI infrastructure as he constructs a massive data center in Memphis.

In a statement, Musk signaled that he is eager to turn his attention to his suite of businesses after revealing last week that he would be stepping back from politics. For months, he served as a senior adviser and frequent travel partner to President Trump, whom he campaigned for in the 2024 campaign and was one of his leading financial backers.

Musk’s debt package enables him to keep spending on AI infrastructure 

Early pricing talks were 7 percentage points over the benchmark for the floating-rate term loan and a roughly 12 yield on the senior notes, other people with knowledge of the matter said. Demand for the debt sale already tops $3.5 billion, they said.

Musk’s involvement in Washington, where he managed a large government cost-cutting project called the Department of Government Efficiency, attracted significant criticism directed at him. This raised worries about how well his companies are doing. Tesla Inc., where Musk serves as CEO, has seen its stock prices drop by 20% since the inauguration. 

Besides xAI’s debt offering, Musk secured $650 million for his neurotechnology firm, Neuralink Corp. He also revealed plans to sell $300 million in xAI shares through a secondary offering, as reported by the Financial Times. 

A spokesperson for xAI chose not to comment. Morgan Stanley also did not respond immediately.

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