A measure of credit risk at Elon Musk’s SpaceX rose to a record high while its bonds dropped after the rockets-to-AI group’s new plans to raise $40bn in debt to buy Nvidia chips spooked investors.
The spread on SpaceX’s five-year credit default swaps rose to 194 basis points on Wednesday after the FT reported· on the fundraising plans, meaning it now costs $19,400 annually to protect $1mn of its debt against default. The CDS began trading in June at around 110 basis points.
Investors were also selling SpaceX’s debt, pushing the yield over Treasuries on its 2056 bond up 0.09 percentage points on Wednesday to 2.36 percentage points, according to MarketAxess data. The so-called spread, a measure of the premium investors demand to hold the bonds rather than ultra-low-risk US government debt, registered 1.75 percentage points in June.
SpaceX is seeking to raise $10bn in bank loans and $30bn in investment-grade debt to fund its purchases of the chips, the FT reported on Tuesday. Private capital firm Apollo was expected to lead the deal, while bond giant Pimco was among lenders in talks to fund it.
It comes after the company issued $25bn in investment-grade debt in June just weeks after raising $86bn in its historic initial public offering. The new debt deal suggests Musk is doubling down on his bet on Nvidia’s technology.
Morgan Stanley analyst Adam Jonas this week said some investors were sceptical that Musk’s company would achieve “success as a major provider of frontier AI models” or launch “any amount of orbital compute in any time horizon”.
“I regularly present to large groups of clients and ask the room: ‘Who here owns [SpaceX] shares?’” Jonas wrote in a note to clients. “Last night, when I did that in front of 40 clients, not a single hand went up.”
The $40bn fundraising effort is the latest in a series of blockbuster debt deals by the leading Silicon Valley tech groups to fund the construction of AI infrastructure across the US. Hundreds of billions of dollars’ worth of bonds and loans have been issued by the likes of Alphabet, Meta, Oracle and Amazon across public and private markets.
CDS of other tech companies that are borrowing vast amounts to fund AI projects have also come under pressure in recent weeks.
The cost of Oracle’s five-year CDS has climbed 40bp since the start of last month to 244bp. The same CDS for chipmaker Nvidia has risen to about 81bp points from 45bp in early July.
Equivalent contracts for Alphabet, Meta and Microsoft have also surged over the past few weeks and are now quoted close to record highs.
“Everyone is looking for ways to hedge against a hiccup” in the AI investment trade, said a US-based equity capital markets banker.