FILE PHOTO: A 3D-printed miniature model of Elon Musk and the xAI logo are seen in this illustration taken January 23, 2025. REUTERS/Dado Ruvic/Illustration/File Photo
NEW YORK (Reuters) -Elon Musk's xAi extended the deadline and increased the yield it is paying on a $5 billion debt sale following lukewarm reception from investors, a person with direct knowledge of the matter said on Friday.
The deadline for investors to commit to buying into the deal, which includes bonds and loans, was extended from Tuesday to Friday, this person said, asking not to be named because the details of the deal were private. xAI also upped the yield on the $3 billion in bonds and a $1 billion term loan from 12% to 12.5% yield, they said.
xAi sweetened the pot on a second term loan from 700 basis points to 725 basis points over the Secured Overnight Financing Rate, known as SOFR. The term loan B is set to be priced at a discount of 96 cents on the dollar, the person said. xAI and Morgan Stanley, which is leading the deal, didn't immediately respond to requests for comment.
High-yield bonds paid an average yield to maturity of 7.6% as of Thursday, according to ICE BofA High Yield Index. Investors are demanding more for xAI's debt because the company and its bonds are not yet rated, giving investors little visibility into the company's finances and increasing the risk.
An increase in the yield offer could mean that investors had probably agreed to buy the debt only for a higher yield. The borrower also has lesser flexibility on pricing when investor demand is modest. If the deal closes on Friday, Morgan Stanley will distribute the securities to investors on Monday, this person said.
The xAI offering, which was reported on June 2 as Musk and U.S. President Donald Trump traded barbs over social media, did not receive overwhelming interest from high-yield and leveraged loan investors, Reuters reported earlier this week.
One portfolio manager, who said he passed on the bonds, said a "good deal" will typically be oversubscribed by three to four times. xAI would up the yields if it didn't attract enough investors, he added.
Unlike Musk's debt deal when he acquired Twitter, Morgan Stanley did not guarantee how much it would sell or commit its own capital to the deal, in what is called a "best efforts" transaction, according to one person familiar with the terms.
xAi did not immediately respond to a request for comment. Morgan Stanley declined to comment.
(Reporting by Tatiana Bautzer and Matt Tracy; Editing by Dawn Kopecki, Mark Porter, Alexandra Hudson and Nick Zieminski)
