SpaceX launches its first sale of investment-grade bonds.

      Following a historic IPO that elevated Elon Musk to trillionaire status, SpaceX is set to raise at least $20 billion in its inaugural bond sale to finance a significant expansion in artificial intelligence.

      This marks a first for Musk's companies, as SpaceX is now seeking to borrow funds from public bond investors. On Monday, the aerospace firm initiated its first sale of investment-grade bonds, aiming to secure at least $20 billion, as reported by Bloomberg.

      The banks that facilitated SpaceX's initial financing are organizing calls with potential investors, including Bank of America, Citigroup, Goldman Sachs, JPMorgan, and Morgan Stanley. The new bonds will have maturities ranging from five to thirty years.

      Purpose of the funds

      Most of the proceeds will be used to refinance a bridge loan of approximately the same amount, which constitutes a significant portion of SpaceX's $29.1 billion long-term debt. The remaining funds will be allocated for general corporate activities.

      The bond offering received favorable ratings from all three major agencies: Moody’s rated it Baa1, Fitch assigned a BBB+, and S&P gave it a slightly lower rating of BBB. All these ratings sit firmly within the investment-grade category, well above junk status.

      SpaceX is not lacking in liquidity, with approximately $100.8 billion reported, a figure Bloomberg estimated at around $101 billion as of June 19. Despite this, its shares declined by about 8 percent, continuing a downtrend following its IPO.

      A record initial public offering, only days prior

      The bond sale comes less than a week after SpaceX’s remarkable entry into the stock market. The record-setting IPO was priced at $135 per share and raised approximately $75 billion.

      This strong debut briefly propelled SpaceX's market valuation above that of Amazon, surpassing Broadcom, Meta, and Tesla. It also marked a significant milestone for Musk, making him the first trillionaire on paper.

      SpaceX’s CFO Bret Johnsen and president Gwynne Shotwell now boast a balance sheet that reflects the company's ambitious plans.

      Borrowing for AI development

      The focus of this financial activity is artificial intelligence. SpaceX aims to establish data centers, including those intended for orbit, to support the computing requirements of the AI surge.

      The financial outlook is taking shape, as the company has engaged in contracts worth about $75 billion to provide computing resources to Google and Anthropic, which is becoming a rapidly growing revenue source alongside its Starlink network.

      SpaceX is not the only big player relying on debt; Alphabet and Amazon have collectively raised over $300 billion since November, and Nvidia has also issued $25 billion in bonds. SpaceX is simply the latest major corporation to heavily borrow against the anticipated growth in AI.

      Concerns regarding the rocket business

      The size of the endeavor raises concerns among some analysts. Oppenheimer’s Timothy Horan projects that by 2031, SpaceX could hold over $400 billion in net debt, more than triple Oracle’s burden.

      Data centers require substantial investment for years before yielding returns. The plans also raise the potential for regulatory oversight and inquiries into their energy and environmental impact.

      Additionally, there is Elon Musk himself. His significant voting power means investors are supporting a company largely controlled by one individual. Moody’s, however, based its rating on the strength of the Starlink business and SpaceX’s strategic importance to the U.S. government. For now, the bond market appears prepared to finance this venture.