SpaceX $25 billion bond sale raises investor questions

SpaceX’s $25 billion foray into debt markets appeared to be well received by bond markets last week, with huge demand for the offering.

But one of the biggest-ever AI bond issuances, less than two weeks after SpaceX’s IPO, has highlighted the group’s intense financing needs, capital spending plans and future refinancing obligations — and posed a diversification challenge for investors.

The group tapped debt markets on June 22, announcing a senior unsecured notes offering, with sources telling CNBC that the company was looking to raise $20 billion, which was then increased to $25 billion. The company said it would use the net proceeds to “repay the outstanding borrowings under its bridge loan facility in full, to pay related fees and expenses, and any remaining amount for general corporate purposes.”

SpaceX received nearly $90 billion worth of orders, people familiar with the fundraising previously told CNBC. They asked not to be named because the details are private.

But the move appeared to unnerve equity investors, with SpaceX falling more than 13% for the week after a strong post-IPO run.

Chris Beauchamp, chief market analyst at IG, said SpaceX will increasingly have to “work hard to make itself heard,” adding there are plenty of offerings from more profitable concerns that can steal the limelight.

“Equity investors are one thing, but bond guys are the grown-ups in the room,” Beauchamp told CNBC via email. “SpaceX might find it has its work cut out for it, but I suspect the market can absorb the issuance overall.”

“The timing certainly isn’t great, but we have seen brief bouts of panic like this before, and the wagon tends to roll onwards in 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 tapping debt markets while carrying a $5 billion net loss and capex that more than doubled year over year.”

Della Fave said SpaceX’s losses and high capital expenditure aren’t “alarming” in isolation, as “capital-intensive growth companies run hot.”

However, he highlighted “the structural issue” that “investors aren’t pricing in.”

“Owning SPCX equity and SpaceX bonds isn’t diversification,” Della Fave added. “It’s the same execution risk across two instruments.”

“Starlink has to scale. Starship has to work. Both the equity story and the debt service depend on it. For portfolio construction, we treat total SpaceX exposure as a single concentrated position regardless of instrument, the same way you’d approach any single-name technology bet dressed up as a multi-asset allocation.”

SpaceX’s multi-billion-dollar debt issuance means many investors have become exposed to the group via two different asset classes – equities, via its blockbuster IPO on June 12 – and now, corporate bonds.

“Nearly all investors already hold allocations to US technology and the purpose of bonds as an asset class is surely to diversify,” Julian Howard, multi-asset head at Gam, told CNBC on Friday.

He pointed out that SpaceX’s 10-year issue is trading at a relatively tight spread to the equivalent U.S. Treasury of 1.4 percentage points.

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

“While that is comfortably ahead of inflation, the risk will be that spreads will widen if there is any hint of SpaceX not meeting its ambitious revenue targets, or if the outlook for tech and AI falters in any way,” he added. 

In the long term, SpaceX faces two big challenges in the markets, said Morningstar chief investment officer Mike Coop.

“Firstly, the supply of shares will go up as early investors lighten up exposures and monetize gains,” he told CNBC.

“Secondly, the current price is too high given the massive uncertainty around the company’s prospects and its starting point of being heavily loss making and requiring huge capital investment.”