Elon Musk’s AI company, xAI, has closed a US$5 billion debt sale led by Morgan Stanley, although investor demand was reportedly modest.

Sources familiar with the transaction indicate that the debt package includes a floating-rate term loan, a fixed-rate loan, and secured bonds, with allocations made to investors on June 17, 2025.

The floating-rate loan carries an interest rate of 700 basis points above the Secured Overnight Financing Rate. Meanwhile, the fixed-rate loan and secured bonds offer yields of about 12%.

Interest in the offering was subdued, with orders for the debt totaling about 1.5 times the available amount. This is lower than the typical demand of 2.5 to 3 times seen for similar high-yield transactions.

This debt sale follows Musk’s previous financing challenges, including a US$13 billion loan related to his acquisition of social media platform X (formerly Twitter) in 2022.

In addition to the debt raise, xAI is reportedly in discussions to secure around US$20 billion in equity funding.

Neither xAI nor Morgan Stanley has commented on these developments.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ AI startups command premium valuations despite expensive debt financing

The xAI debt offering provides a striking example of how AI startups continue to attract massive investments despite paying substantially higher financing costs than established companies.

xAI’s 12% yield on secured notes is significantly higher than the 7.6% average for high-yield bonds, reflecting the premium investors demand for unrated, pre-profit companies1.

This aligns with broader 2025 AI funding trends, where venture capital firms invested over $180 billion into startups (a 27% increase from the previous year), with AI companies receiving substantial portions of this capital2.

Other AI startups demonstrate similar valuation momentum despite financing costs. For example, Mercor, an AI hiring platform, reached a $2 billion valuation, while Anysphere’s Cursor reportedly signed $100 million in contracts within a year of launch3.

This funding environment suggests investors are prioritizing potential AI market dominance over near-term profitability or traditional debt metrics when valuing these companies.

2️⃣ Venture debt grows as strategic financing tool despite higher rates