XAI of Elon Musk is on the way to closing a financing round of 5,000 million dollars led by Morgan Stanley, despite the lukewarm demand of investors, according to two people familiar with the matter.
The sale of debt of 5,000 million dollars, which includes a term loan with floating fee, a loan with a fixed rate and guaranteed bonds, will be assigned to investors on Wednesday, the two people said, who asked not to be identified because the agreement is private. XAI did not immediately respond to a comment request, while Morgan Stanley refused.
XAI’s offer, which was reported on June 2 while Musk and US President Donald Trump exchanged criticism in social networks, did not receive an overwhelming interest of leverage and high -performance loan investors, said five people informed about the agreement.
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The floating rate loan will be offered with an interest rate of 700 basic points on the guaranteed financing rate to one day, a reference rate used to set the price of bond transactions, while the loan at a fixed rate and the guaranteed promissory notes will pay a performance of approximately 12%, the two people said.
The average yield to the expiration of high performance bonds closed on Monday by 7.6%, according to the ICE Bofa High Yield index, the Musk artificial intelligence company has to pay significantly more because XAI and its debt are not yet qualified, which gives investors little visibility on the finances of the company and a higher risk.
Three investors in bonds who were offered the debt declared Reuters that they refused to invest. One of them pointed out that Xai has not yet generated benefits and that the debt has no credit rating. They were especially reluctant given the history of Musk when he financed the acquisition of the social networks giant X, then known as Twitter, for 44,000 million dollars in 2022. The banks that lent him 13,000 million dollars to close the operation were forced to maintain that debt in their balances for two years because they could not get rid of it.
While the debt was sold in its entirety, the demand for investors was moderate, according to the five sources. Investors submitted applications for approximately 1.5 times the amount of debt available, according to the first two people informed about the operation. Most of the similar operations with junk bonds usually attract applications between 2.5 and 3 times the loans and bonds offered, according to the sources.
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Unlike the Musk debt agreement when Twitter acquired, Morgan Stanley did not guarantee how much he would sell or compromise his own capital for the agreement, in what is called a transaction of “better efforts”, according to a person familiar with the terms.
With the acquisition of Twitter, the banks ended up earning money with the debt, selling it with little or no discount months after Trump won the White House and the influence of Musk in Washington grew.
In addition to selling debt, XAI has also been in conversations to raise around 20,000 million dollars in capital, which the company values in more than 120,000 million dollars, and some investors estimate valuations of up to 200,000 million dollars, Reuters reported last week.
With Reuters information
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