SpaceX’s $25 billion bond sale raises questions for investors

SpaceX The $25 billion in debt markets appeared to be well-received by the bond markets last week, with strong demand for the offering.

But another major AI bond issuance, less than two weeks after SpaceX’s IPO, highlighted the group’s pressing needs, capital spending plans and future repayment obligations — and posed a diversification challenge for investors.

The group touched the credit markets on June 22, announcing senior unsecured notes, with sources telling CNBC that the company was looking to raise $20 billion, which then rose to $25 billion. The company said it will use all proceeds to “repay outstanding loans under its bridge facility in full, pay related expenses, and any remaining funds for general corporate purposes.”

SpaceX received nearly $90 billion in orders, people familiar with the fundraising previously told CNBC. They asked not to be identified because the information is confidential.

But the move didn’t seem to upset equity investors, with SpaceX down more than 13% for the week after a strong IPO run.

Chris Beauchamp, senior market analyst at IG, said SpaceX will continue to “work hard to make itself heard,” adding that there are many offerings from more profitable issues that could steal the spotlight.

“Equity investors are one thing, but the seniors are the seniors in the room,” Beauchamp told CNBC via email. “SpaceX may find it has its work cut out for it, but I suspect the market can absorb all the releases.”

“The timing isn’t very good, but we’ve seen short periods of panic like this, and the wagon tends to roll forward at the end.”

Christopher Della Fave, senior vice president, capital markets at Post Oak Group, said: “Two weeks after the largest IPO in history, SpaceX is already dragging the credit markets while managing a net loss of 5 billion and doubling capex for the year.”

Della Fave said SpaceX’s losses and large capital expenditures are “not shocking” on their own, since “high-growth companies are very hot.”

However, he highlighted the “structural issue” that “investors are not pricing in.”

“Managing SPCX equity and SpaceX bonds is not diversification,” added Della Fave. “It’s the same risk of being killed in both instruments.”

“Starlink has to scale. Starship has to work. Both the equity issue and the debt service depend on it. In building the portfolio, we treat SpaceX’s total exposure as one concentrated area regardless of instrument, the same way you would treat any single-name technology bet dressed as a multi-asset allocation.”

SpaceX’s multibillion-dollar debt issuance means more investors are exposed to the group in two different asset classes — equity, with its blockbuster IPO on June 12 — and now, corporate bonds.

“Almost all investors already have a stake in US tech and the purpose of bonds as an asset class is diversification,” Julian Howard, head of multi-assets at Gam, told CNBC on Friday.

He pointed out that SpaceX’s 10-year bond trades at a tight spread over US Treasuries of 1.4 percent.

In the debt sale, SpaceX priced the bonds at five different rates, with notes due between 2031 and 2056. Rates vary from 5.35% on the 2031 bonds to 6.65% on the 2056 notes.

“While that is pre-inflationary, the risk will be that the spread will widen if there is any hint that SpaceX is not meeting its revenue goals, or if the technology and AI outlook falters in any way,” he added.

In the long run, SpaceX faces two major market challenges, said Morningstar chief investment officer Mike Coop.

“First, the supply of stocks will increase as early investors reduce exposure and capitalize,” he told CNBC.

“Secondly, the current price is too high given the great uncertainty about the company’s prospects and its very loss-making start and the need for large investments.”