NEW YORK: The roughly US$17.5bil of debt tied to Elon Musk’s social network X and artificial intelligence (AI) startup xAI is set to be paid back in full, according to people with knowledge of the matter.
Morgan Stanley, which handled both companies’ debt raises, has been telling existing lenders on behalf of X and xAI that the firms will repay the outstanding debt, said the people, who asked not to be named because the details are private.
They haven’t disclosed where the capital is coming from, the people added. xAI raised US$20bil of new equity money in January.
X, formerly known as Twitter, took on about US$12.5bil of debt during Musk’s purchase, while xAI borrowed US$5bil through bonds and loans in June.
The companies merged last year under xAI Holdings.
The planned repayment comes as Musk looks to consolidate his businesses and take them public. SpaceX bought xAI last month, turning it into a subsidiary as the firm looks to build data centres in space.
The combined business is now worth US$1.25 trillion.
A Morgan Stanley representative declined to comment. Representatives for X and xAI didn’t immediately reply to requests for comment.
Musk, the world’s richest person with a US$666bil fortune, is looking to take his rocket company SpaceX public in the coming months.
The Starbase, Texas-based firm is targeting filing confidentially for an initial public offering as soon as this month, Bloomberg reported last week, which would keep it on track for a June listing.
Unlike X and xAI, SpaceX hasn’t tapped the debt capital markets for years.
But the story for X and xAI has very much been the opposite: X has been paying tens of millions each month to service its debt, while xAI burns about US$1bil of cash per month.
The need for cash has been acute as Musk’s AI startup spends billions on data centres, chips and talent.
xAI has turned to Antonio Gracias’ Valor Equity Partners in recent months for financing options to access Nvidia Corp chips.
The venture capital firm has been working with Apollo Global Management and other lenders to raise as much as US$20bil through special purpose vehicles that acquire the chips and lease them to xAI.
Though some of the debt set to be paid back has been outstanding for a few years, there are portions less than a year old and thus can have penalties attached.
xAI’s US$3bil of high-yield bonds are set to be redeemed at 117 US cents on the dollar, a premium as the debt was expected to remain outstanding for at least two years.
The notes had traded up in recent weeks and jumped about three points on Monday to about 117 US cents on the dollar, according to Trace pricing data.
When companies repay bonds so early, they often have to pay a penalty to investors and also the interest the debt would have incurred over a pre-determined time period.
xAI changed its debt documents last year, with provisions that make it more difficult for xAI to shift assets, which protects lenders’ collateral. It also set a ceiling on the amount of secured debt it can raise. — Bloomberg
