Elon Musk’s artificial intelligence startup xAI is racing to secure a $5 billion debt financing package — but an escalating public spat with former U.S. President Donald Trump is injecting fresh uncertainty into the deal, just as it neared completion.
Sources familiar with the matter say Musk’s primary bankers at Morgan Stanley had been close to finalizing the high-stakes package to support the development of new data centers and advanced AI chips. Backed by major investors including TPG, the deal had already attracted more than $4 billion in preliminary orders.
However, a very public breakdown in Musk’s relationship with Trump — once dubbed a “first buddy” by the Tesla CEO — has complicated the optics of the deal for investors and increased concerns over potential political risk.
On Thursday, as Musk and Trump traded barbs on social media, xAI executives were simultaneously pitching the company’s growth projections to investors. The timing couldn’t have been worse.
“This makes it even harder,” said one individual involved in the due diligence process. “You need government support for that whole ecosystem, not just for this. It has to have some impact on people’s comfort level with supporting it.”
The financing package, still expected to include both fixed- and floating-rate loans as well as corporate bonds, had been heading toward favorable terms. Morgan Stanley was reportedly exploring lowering the bond and fixed-rate loan coupons from 12% to 11.5%. But that pricing now hangs in the balance, with some investors predicting xAI may be forced to pay more to lock in the capital.
Behind the scenes, friction had already been building. Some investors raised red flags over deal documentation, including how much incremental debt xAI could assume and how much cash it could distribute to investors. Others questioned the valuation of xAI’s collateral — primarily data centers still under development — and the intellectual property tied to the loans.
“The data room was underwhelming,” said one prospective investor, referring to the limited access and sparse slide deck presented to lenders. “It’s all fantasy, it’s an idea. They are spending money, not making money yet.”
Despite these concerns, Morgan Stanley remains on track to finalize the package by a June 17 deadline. Yet tensions within the deal are visible elsewhere: prices for debt issued by xAI’s sister company, social platform X, dropped sharply to around 96 cents on the dollar after the Musk-Trump feud, down from 99 cents the previous day.
Investors conducting due diligence describe xAI as a lossmaking entity with modest revenue, but express belief in the company’s long-term commercial potential. One lender noted, “On the consumer side, OpenAI has a big lead, but on the commercial side, xAI can be a material player — and that will be worth a lot more than $15 to $20 billion.”
Earlier this week, the Financial Times reported that xAI had launched a $300 million equity sale valuing the company at a staggering $113 billion, further raising the stakes for any debt holders concerned about early-stage risks.
Neither xAI, Morgan Stanley, nor TPG responded to requests for comment.
As political tensions swirl and due diligence frustrations mount, one thing is clear: xAI’s future — and its cost of capital — may hinge as much on Elon Musk’s public persona as on its technological promise.
