startups

Elon Musk’s SpaceX is the latest big tech company to tap the risky leveraged-loan market


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SpaceX is the latest of Elon Musk’s companies to tap the leveraged-loan market.
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Kevork Djansezian/Getty Images
  • SpaceX, one of Tesla CEO Elon Musk’s major business
    ventures, has tapped the risky leveraged-loan market.
  • Its $250 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 $250 million on Monday, having
initially sought to borrow as much as $750 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
$20 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 $1.6 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.

Read more: Giant
tech firms like Uber and Tesla are lapping up junk debt – here’s
why investors are lining up to lend it

SpaceX’s seven-year loan was issued at $0.99 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 $750 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 behavior. 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 $2 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.





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