SpaceX, one of Tesla CEO Elon Musk’s major business
ventures, tapped the risky leveraged loan market.
The $250 million deal received a mixed reception from
investors given SpaceX’s cash burning history.
The company previously 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
taken as a result of deteriorating credit conditions during the
Bank of America led the financing which will help fund SpaceX’s
push into sending astronauts into space and eventually humans to
Mars. The loan had previously been led by Goldman Sachs, who
helped take Tesla public, before rejected the proposed terms
regarding future debt funding.
Previous private equity funding 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
The leveraged loan market has expanded dramatically in recent
years into a $1.6 trillion industry. Doubts have been raised
about the quality of these deals by former Federal Reserve chair
Janet Yellen and the IMF this year as companies pile on more and
Another of Musk’s companies, Tesla, also tapped the high yield
market earlier this year. Other major tech companies Netflix,
Uber, and WeWork have also expanded into leveraged financing in
the past 18 months.
Space X’s seven-year loan was issued at 99 cents on the dollar
with a coupon of 4.25% — a higher interest rate than
previously expected. Investors committed $750 million forward for
the loan, suggesting interest was still strong in providing
funding despite renewed concerns about leveraged loans, although
SpaceX eventually took the smaller amount.
The S&P/LSTA Leveraged Loan Index saw the average
price of loans fall 0.3% in the past week indicating investors
see the product as more risky.
Musk has become a controversial figure for investors due to his
volatile behaviour, according to the Wall Street Journal. The
SpaceX chief executive, who is also CEO of Tesla, mocked the SEC
earlier this year after it
settled a lawsuit against him following a tweet claiming he
had secured funding to take Tesla private.
SpaceX’s current business model involves sending commercial and
government satellites into space. However it’s 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
Earlier this year, SpaceX was shut out of a U.S. Air Force
contracts worth more than $2 billion to develop boosters for US
military and spy satellites in the mid-2020s.
Musk’s company is planning to launch thousands of
satellites to cover the Earth with internet access while SpaceX
has also introduced a
larger rocket, called BFR, in 2016 with test flights set to
begin next year.
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