SpaceX is selling investment-grade bonds for the first time in what’s expected to be the start of a massive borrowing spree to fund the company’s AI ambitions following its record $75-billion IPO.
Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley — the banks that provided temporary bridge financing to the company — are arranging calls with investors on Monday, according to a person with knowledge of the matter, who asked not to be identified because they’re not authorized to speak publicly.
A bond offering is expected to follow, with maturities of between five and 30 years, the person said.
Elon Musk’s rocket, satellite and AI conglomerate is seeking to raise at least $20 billion from the offering, Bloomberg reported last week. Proceeds will refinance the bridge loan of roughly the same size, a facility that makes up the bulk of SpaceX’s $29.1 billion of long-term debt.
SpaceX received ratings in the BBB tier from all three major bond graders last week, paving the way for cheaper borrowing. Moody’s Ratings and Fitch Ratings graded SpaceX’s debt at Baa1 and BBB+ respectively, or three steps above junk. S&P Global Ratings assigned a BBB rating, one notch lower.
SpaceX’s record-breaking initial public offering turned the start-up into one of the world’s most valuable public companies and its founder into the world’s first trillionaire. The company held almost $101 billion in cash and equivalents as of Friday, it said in a filing.
In previous meetings with prospective equity investors, the company’s finance chief Bret Johnsen and President Gwynne Shotwell said they expected the IPO was the last time SpaceX would sell stock. Instead of raising billions by diluting shareholders — as well as Musk himself — the plan is to tap debt markets after it touted investment-grade ratings throughout the IPO process, according to people with knowledge of the matter.
AI debt boom
Musk has utilized debt markets extensively to buy or grow his businesses, securing billions in bank commitments and structuring complex financings. Even so, none of his companies has previously issued investment-grade corporate bonds in the public market, while Musk said in a post on X that Tesla Inc.’s credit rating is “ridiculously low.”
Oppenheimer & Co. analysts led by Timothy Horan are modeling for the company to tack on more than $400 billion in net debt by 2031. That’s vastly more than almost every U.S. company currently has on its books and would more than triple what Oracle Corp. has. The analysts expect debt to be the primary source of funding for the company supplemented by roughly $40 billion of additional equity, they wrote in a Thursday note.
SpaceX’s debut high-grade bond sale is the latest in a wave of jumbo deals from technology companies driving the artificial intelligence boom. Alphabet Inc., Amazon.com Inc. and others have raised more than $300 billion of debt tied to AI since November across multiple credit markets, driving near-record issuance this year, according to JPMorgan strategists.
Investors have so far readily absorbed the supply. Nvidia Corp.’s recent $25-billion bond sale, the latest megadeal, drew orders exceeding three times the size of the offering.
AI is expected to be a key earnings driver for SpaceX in the coming years, as the company has secured contracts worth roughly $75 billion to provide computing power to Google and Anthropic PBC.
The company’s franchise in operating the Starlink broadband network, and its strategic relevance to the U.S. government as the primary launch provider for NASA and the Department of Defense, were factors cited by Moody’s in assigning an investment grade rating.
But the huge spending plans come with risks.
Building data centers and other AI infrastructure requires enormous amounts of capital and is expected to consume cash for years, with the projects also potentially facing regulatory scrutiny and criticism over their energy use and environmental impact, Moody’s said in a note. The company also faces elevated governance risks because of Musk’s concentrated voting power and limited independent board oversight, the ratings firm added.
Smith and Gambale write for Bloomberg.
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