Elon Musk’s artificial intelligence company, xAI, has revised the terms of its $5 billion debt offering, raising the yield and extending the investor deadline in an effort to improve lackluster interest. According to a source familiar with the matter, the deadline for committing to the deal was moved from Tuesday to Friday, giving investors additional time to consider the new terms.
The offering, which includes a mix of bonds and term loans, initially offered a 12% yield. xAI has now increased the yield to 12.5% on $3 billion worth of bonds and a $1 billion term loan. A second loan tranche—Term Loan B—was also adjusted, with the yield bumped from 700 to 725 basis points above the Secured Overnight Financing Rate (SOFR). That loan is expected to price at a discount of 96 cents on the dollar.
Market Hesitation and Higher Risk Premiums
The yield increase comes amid tepid demand, as investors sought more favorable terms to compensate for the risk. High-yield bonds are currently averaging a yield of 7.6%, according to the ICE BofA High Yield Index. In contrast, xAI’s debt is seen as riskier due to its lack of credit ratings and limited financial disclosures, prompting investors to demand significantly higher returns.
According to one investor, the weak response indicates the deal was not oversubscribed—a key signal of market enthusiasm. “A good deal is usually three to four times oversubscribed,” said a portfolio manager who opted not to participate. “If xAI had to raise the yield, that tells you they didn’t hit that mark.”
A ‘Best Efforts’ Transaction with No Bank Commitments
Unlike Elon Musk’s debt financing during his acquisition of Twitter—where banks like Morgan Stanley guaranteed portions of the debt—this offering is structured as a “best efforts” transaction. This means Morgan Stanley, the lead bank on the deal, is not obligated to sell a specific amount or commit its own balance sheet to the financing. The securities are expected to be distributed to investors on Monday, provided the deal closes on Friday.
Neither xAI nor Morgan Stanley responded to Reuters’ requests for comment on the revised deal terms.
Broader Context and Investor Caution
The timing of xAI’s offering, first reported on June 2, coincided with a public exchange between Musk and former U.S. President Donald Trump on social media, drawing further attention to the company’s fundraising. Yet, that publicity has not translated into strong investor demand.
While Musk’s name carries significant weight in the tech world, investors remain cautious about backing unproven ventures—especially when financial transparency is limited. Without a formal credit rating or a long track record, xAI is perceived as a speculative bet in an already challenging high-yield market.
xAI’s move to revise the terms of its $5 billion debt sale reflects a measured response to market feedback. But it also underscores the caution investors are exercising—even when high-profile founders like Elon Musk are involved. As AI investments continue to surge across the tech sector, the outcome of this offering may provide insight into the limits of investor appetite for risk in the current environment.