- SpaceX, one of Tesla CEO Elon Musk’s major business ventures, has tapped the risky leveraged-loan market.
- Its $US250 million deal received a mixed reception from investors given SpaceX’s cash-burning history.
- The company has relied on private-equity funding but now follows Tesla in tapping debt markets.
Elon Musk is loving high-yield debt.
SpaceX took a leveraged loan worth $US250 million on Monday, having initially sought to borrow as much as $US750 million, according to numerous reports. The smaller loan was a result of deteriorating credit conditions during the fundraising period.
Bank of America led the financing, which will help fund SpaceX’s push to send astronauts into space and, eventually, humans to Mars. The loan had been led by Goldman Sachs, which helped take Musk’s Tesla public in 2010, but proposed terms regarding future debt funding were rejected, according to Bloomberg.
Previous private-equity funding has valued SpaceX at more than $US20 billion, but loan investors were wary of the company’s record of burning cash as it seeks to expand its operations, The Wall Street Journal reported.
The leveraged-loan market has expanded dramatically in recent years into a $US1.6 trillion industry. Former Federal Reserve Board Chair Janet Yellen and the International Monetary Fund have expressed doubts about the quality of these deals this year as companies pile on more and more debt.
Tesla tapped the high-yield market earlier this year. Other major tech companies like Netflix, Uber, and WeWork have also expanded into leveraged financing in the past 18 months.
SpaceX’s seven-year loan was issued at $US0.99 on the dollar with a coupon of 4.25 percentage points above Libor, a higher interest rate than previously expected, The Journal reported. Investors had committed $US750 million for the loan, suggesting interest was still strong in providing funding despite renewed concerns about leveraged loans, though SpaceX eventually took the smaller amount.
The S&P/LSTA Leveraged Loan Index has seen the average price of loans fall by 0.3 percentage points in the past week, indicating investors see the product as riskier, The Journal reported.
Musk has become a controversial figure for investors because of his past volatile behaviour. Musk, the CEO of Tesla and SpaceX, mocked the Securities and Exchange Commission earlier this year after settling a lawsuit against him following a tweet in which he claimed he had secured funding to take Tesla private.
SpaceX’s business model involves sending commercial and government satellites into space. But its opportunities could be diminished following news that NASA, which has contracted the company to fly astronauts to the International Space Station, will launch a safety review of the company, according to The Washington Post.
SpaceX earlier this year was shut out of US Air Force contracts worth more than $US2 billion to develop boosters for US military and spy satellites in the mid-2020s, The Journal reported.
Musk’s company is planning to launch thousands of satellites to cover the Earth with internet access, and test flights of its larger rocket, known as Big Falcon Rocket and introduced in 2016, are set to begin next year.