Elon Musk's xAI Deal Sees Last-Minute Bank Additions in Strategic Move

Elon Musk's artificial intelligence venture, xAI Corp., recently closed a substantial $5 billion debt deal, but not without a few unexpected twists. While Morgan Stanley initially spearheaded the financing, three other major banks — Barclays Plc, Mitsubishi UFJ Financial Group Inc. (MUFG), and UBS Group AG — were brought in at the eleventh hour.

Sources familiar with the matter, who requested anonymity due to the sensitive nature of the information, revealed that xAI specifically requested the inclusion of these banks. The move wasn't merely about securing the current funding; it was a strategic play to cultivate relationships that could prove vital for future financing endeavors.

Both Barclays and MUFG boast existing ties with Musk, having played roles in the intricate debt financing for his 2022 acquisition of Twitter Inc. (now X Holdings Corp.). Furthermore, MUFG and Morgan Stanley share a long-standing partnership, often collaborating on trading and investment banking ventures.

Representatives for all four banks declined to comment, and xAI did not respond to requests for comment.

A Shifting Landscape in the Debt Sale

Interestingly, the three additional banks were largely absent from the early stages of the sale process. However, they ultimately received credit in the deal documents after stepping in. While Morgan Stanley, as the lead arranger, secured the bulk of the fees, the inclusion of Barclays, MUFG, and UBS highlights a deliberate effort by xAI to broaden its banking relationships.

The debt sale itself wasn't without its challenges. Multiple banks initially expressed interest, but the deal launched during a period when Elon Musk's relationship with President Donald Trump was still amicable. A subsequent public falling out between the two raised concerns among investors. Adding to the apprehension were questions about xAI's financial health, particularly the disclosure that the startup was burning through a staggering $1 billion a month.

Midway through the process, Morgan Stanley, Musk's long-standing primary bank, acceded to xAI's request to bring in Barclays, MUFG, and UBS. The rationale behind this move, according to insiders, is clear: the involvement of these banks and the associated fees they earn could provide a crucial advantage as xAI seeks additional funding down the line. This could potentially include a revolving loan to manage day-to-day operational expenses.

Looking ahead, xAI reportedly aims to raise another $6.4 billion of capital next year, in addition to its planned equity raise and the recently finalized $5 billion in debt. The current debt deal also sets a ceiling on the amount of additional secured financing the company can raise.

It's not uncommon for debt sale structures to evolve or for banks to be added mid-process as underwriters navigate the complexities of securing a deal. This situation with xAI seems to be a prime example of such dynamic adjustments, driven by both immediate financing needs and long-term strategic considerations.