SpaceX Debt Is ‘Biggest Rising Star of All Time,’ Marathon’s Richards Says

Even as SpaceX readies its record initial public offering, it’s already the “biggest rising star of all time” in credit, says Bruce Richards, chairman of Marathon Asset Management LP.

With pricing set for Thursday, all eyes are on the IPO, through which Elon Musk’s rocket, AI and satellite company will raise an eye-popping $75 billion, valuing the company at around $1.8 trillion.

But Richards points out that just months ahead of the deal, SpaceX pulled off a $20 billion debt offering that slashed its financing costs from speculative levels to those more akin to blue-chip borrowers — effectively winning a “rising star” upgrade from investors even before rating companies weighed in. The designation refers to companies whose credit standing improves from junk to high-grade.

Read More: Musk Taps SpaceX’s Financial Power to Cut Interest Costs in Half

“It is clearly an IG-rated company” as the markets view it, Richards said in an interview with Bloomberg Television, referring to investment grade.

SpaceX earlier this year secured a $20 billion bridge loan that cut its interest rates in half, locking in an effective rate of less than 5% to replace debt with rates as high as 12.5%. Now, as a roughly $2 trillion company, $20 billion of debt would amount to just 1% of SpaceX’s value, Richards said, adding that post-IPO the company will have more than $80 billion of cash and no net debt.

“The company is very well-positioned across the board,” Richards said.

SpaceX is telling investors it has lined up investment-grade ratings from three major bond graders, Bloomberg reported on Wednesday, which could help the company cut funding costs as it continues to raise financing after its IPO. CreditSights analysts this week said they expect a debt offering “shortly after” the IPO.

“Certainly they’ll have capital needs and they’ll use the debt markets to tap into those capital needs,” said Richards, adding that further borrowing shouldn’t dent its high-grade standing. “For SpaceX to have $30 billion or $50 billion of debt is completely within the realm of a strong BBB credit rating,” or investment grade, he said.

Marathon, with $24 billion under management, is a holder of SpaceX debt, a representative confirmed.

Elsewhere, Richards acknowledged the redemption-request frenzy plaguing private credit, though notes it is “a sliver” of what JPMorgan Chase & Co. now estimates is a $2.1 trillion market.

Still, he reiterated his caution about software, noting that many managers have “taken way too much software exposure within their open-ended structures,” and that is “problematic.”

In March, Richards predicted default rates of 15% in the software industry for the next two years.