Elon Musk's Artificial Intelligence startup xAI Corp is on track to secure a $5 billion debt raise, led by Morgan Stanley, despite lukewarm investor demand. The deal, which includes a floating-rate term loan, fixed-rate loan, and secured bonds, has garnered modest interest, with investors submitting orders for roughly 1.5 times the amount of debt available. This development comes amid a public spat between Musk and US President Donald Trump, which has seemingly impacted investor enthusiasm. xAI's funding efforts also include talks to raise $20 billion in equity, valuing the company at over $120 billion.
The deal started strong. Early last week, Morgan Stanley had already received over $3.5 billion in investor orders. That suggested the offering could be oversubscribed, which is common for Musk-backed ventures. However, by June 16, 2025, interest had only reached around $5 billion. To keep momentum, the bank started contacting smaller lenders. These lenders were not part of the initial invitation.
The final investor list is still expected to be completed by June 17. Usually, banks want demand to far exceed the offer size. This gives them more room to adjust pricing and terms. The slower pace here reflects a more cautious market response.
The Musk-Trump feud is starting to affect businesses. It began last week on social media. Trump and Musk exchanged sharp public criticism. Since then, Tesla’s market value has dropped by $42 billion. The stock has partly recovered as tensions eased.
Concerns remain as some lenders told Bloomberg they were interested in the deal partly because of Musk’s past good ties with Trump. That is no longer the case. Trump even said he may cancel government contracts with Musk’s companies. This feud now raises broader questions. It could hurt not just xAI but also Musk’s other companies, such as SpaceX and Neuralink.
The $5 billion deal includes a mix of loan types. These are a floating-rate term loan, a fixed-rate term loan, and senior secured notes. Investors are being offered a yield of around 12% on the notes and fixed-rate loans.
The floating-rate loan is priced at 7 percentage points above the Secured Overnight Financing Rate (SOFR). It is being sold at a discount of 97 cents on the dollar. Investors who committed at least $50 million were shown limited financial details. These included revenue, profit, cash flow, and forecasts. Reports indicate that the company is spending significantly more than it is earning.
Despite financial concerns, interest in xAI remains strong. The company was valued at $80 billion in March 2025. That is up from $51 billion at the end of 2024. Some credit investors are still excited. They see this as a rare chance to invest in the booming AI sector through debt. Most AI firms raise money through equity, so this offering stands out.
Just a few months ago, Morgan Stanley sold some of the leftover debt from Musk’s acquisition of social platform X. That offering did well. Back then, Musk’s strong ties with Trump helped attract buyers. However, things have changed. After the feud began, the value of those loans fell to 95 cents on the dollar. They have since rebounded to 97 cents, Bloomberg data shows.
Elon Musk’s clash with Donald Trump is more than just a media spat. It is shaping investor behavior and could impact the future of xAI. While early demand for the $5 billion debt deal looked strong, political tensions have made lenders cautious. Musk’s empire may now face more scrutiny, both from Wall Street and Washington.