Elon Musk's artificial intelligence company, xAI, is set to close a $5 billion debt deal this week, even though investor interest has been lower than expected.
Morgan Stanley is leading the deal, which includes a mix of floating-rate loans, fixed-rate loans, and secured bonds, according to people familiar with the matter.
The sale is scheduled to be finalized on Wednesday. While xAI has not made public comments, and Morgan Stanley declined to respond, sources say the offering has not generated the kind of demand often seen in similar high-risk bond sales.
According to Benzinga, the floating-rate portion of the loan will carry an interest rate of 700 basis points over the Secured Overnight Financing Rate (SOFR).
The fixed-rate loan and bonds are expected to offer a yield of around 12%. That's well above the average 7.6% yield for high-yield bonds, as tracked by the ICE BofA index.
Some investors are backing away from Elon Musk's AI company, xAI. They say the interest rates are high because the company hasn't been rated yet and its financial health is still unclear.
At least three potential backers decided not to invest after reviewing the offer, pointing to worries about xAI's lack of profits and an official credit rating.
Elon Musk’s xAI facility is using gas turbines in South Memphis and we’re taking action.
— SELC (@selc_org) June 17, 2025
We just sent xAI a formal notice: stop polluting South Memphis, or we’ll see you in federal court: https://t.co/uIZXCqQyZ7 pic.twitter.com/wIK7RoXZpN
xAI Debt Deal Draws Caution After Twitter Financing Fallout
One investor mentioned past experiences with Musk's financing of Twitter in 2022, when banks were left holding $13 billion in debt for two years because they couldn't resell it, CNA said.
Although the xAI deal was fully sold, sources say it only attracted about 1.5 times the amount of the debt available. That's lower than typical junk bond offerings, which often see two to three times as many orders.
This debt raise is structured differently from Musk's Twitter acquisition deal. Morgan Stanley is using a "best efforts" approach, meaning it didn't guarantee any portion of the sale or use its own capital—adding to the cautious mood around the offer.
Meanwhile, xAI is also seeking to raise around $20 billion in equity funding. If successful, this would value the company at over $120 billion, with some investors reportedly estimating its worth at as much as $200 billion.
The deal comes at a busy time for Musk and follows news that he and former President Trump recently exchanged jabs online.
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