SpaceX Credit Risk Hits New High As AI Debt Binge Fears Spook Bondholders

SpaceX’s proposed $40 billion chip-collateralized financing for Nvidia AI chips, reported overnight by the Financial Times, has restarted concerns over the pace of its debt-funded expansion, which as we discussed last night, , is starting to flash a dangerous shade of red: despite raising a record $86 billion in its June IPO, Elon Musk’s rocket and AI company’s growing financing needs are weighing on sentiment, with its 2056 bonds sliding and five-year credit default swaps surging.

After selling $25 billion in bonds shortly after its public listing, SpaceX is now seeking roughly $10 billion in bank loans and $30 billion in investment-grade debt.

We laid out what this means for Musk’s company in a note titled “From Record IPO To Record Chip-Collateralized Loan In 16 Weeks: SpaceX Taps Apollo For $40 Billion In SPV Debt.” If completed, that would bring issued and proposed borrowing since June to $65 billion.

The market’s verdict was immediate: on Wednesday, SpaceX’s 2056 bonds fell to a new low of around 84.70 cents on the dollar as of 11:25 a.m. in New York, compared with 98.83 cents on the dollar when the securities were issued in June as part of a $25 billion inaugural senior unsecured notes offering.

Meanwhile, as expected, the proposed borrowing binge sent the company’s CDS up as much as 16.2 basis points to about 197.3 basis points Wednesday, the highest on record, and more appropriate for a junk rated company. 

Tony Trzcinka, a portfolio manager at Impax Asset Management, was quoted by the outlet as saying the concerns are “mainly about how much debt SpaceX is adding and how fast.” 

“As a result, the existing bonds have to fall in price now so that their yields stay in line with what the new bonds will likely pay,” Trzcinka said. 

Sal Naro, chief investment officer at Coherence Credit Strategies, warned the outlet that “this is an unprecedented debt supply with no real ending in sight,” adding, ”The world has never seen an infrastructure build like this. This is larger than the railroads because this is global, all at once.”

Meanwhile, SPCX stock continues to rise as if nothing bad has happened, soaring 59% since early August. 

That said, SpaceX is just one small part of the bigger picture: recall that Morgan Stanley estimated AI infrastructure will need $1.5 trillion in external financing by 2028. SpaceX’s $40 billion is just the latest installment (read our note here).