(June 11): Elon Musk’s SpaceX is telling investors it has lined up investment-grade ratings from three major bond graders, according to people with knowledge of the matter, which could help the company cut funding costs as it continues to raise financing after its initial public offering (IPO).
The company’s IPO, expected to raise about US$75 billion, will be priced on Thursday and to start trading on Friday. Some debt market watchers are already anticipating what could be the next step for the company, in particular borrowing in investment-grade debt markets.
CreditSights analysts this week said they expect a debt offering “shortly after the IPO.” SpaceX has a US$20 billion bridge loan that matures in September 2027. That loan makes up the bulk of SpaceX’s US$29.1 billion of long-term debt as of March 31, the company said in its IPO filing with the Securities and Exchange Commission.
It’s unclear what kind of debt rating would be investment grade for SpaceX — whether, for example, that applies to its secured ratings. SpaceX had a net loss of US$4.28 billion on revenue of US$4.69 billion for the first quarter, compared with a net loss of US$528 million on revenue of about US$4 billion a year earlier, according to its filing.
But it has some key contracts that will generate future revenue, including a deal with Alphabet Inc’s Google, which has agreed to pay SpaceX US$30 billion for computing power under a cloud services deal that runs through mid-2029. It also has a roughly US$45 billion deal with Anthropic PBC over about the next three years.
That would probably be enough to get the company high-grade ratings even if didn’t already have them, said Davis Hebert, analyst at CreditSights.
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Other companies have found a much longer path to investment-grade status. Musk’s Tesla Inc, for example, an electric car maker, was speculative grade for years before winning high-grade ratings.
“I don’t think there’s any precedent to draw for a company like SpaceX to understand what their rating should be,” said Zachary Griffiths, head of investment-grade macro strategy at CreditSights.
“Negative earnings are not typically associated with an investment-grade company, but nothing about this is typical, it sits in a category of its own,” Griffiths said.
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Companies sometimes receive private credit ratings that aren’t available to the public. They may also receive informal feedback from ratings agencies that don’t constitute an actual rating event.
SpaceX is required to use proceeds of certain debt financings and the IPO to repay at least some of the US$20 billion bridge loan loan within six months of the receipt of proceeds, according to its IPO filing. Much of the loan was used to take out high-interest junk debt for Musk’s social media and artificial intelligence companies.
The company hinted in its IPO filing that it was already investment grade, saying, “We aim to maintain an investment grade credit rating.” As of March 31, the company had about US$29 billion of long-term debt, according to its IPO filing.
Moody’s Ratings, Fitch Ratings and S&P Global Ratings all have the company at investment-grade, according to people with knowledge of the matter who asked not to be identified discussing non-public information.
Representatives for Moody’s and SpaceX didn’t immediately respond to requests for comment. Fitch didn’t comment beyond saying it has not published a rating on SpaceX. S&P Global Ratings said it hasn’t issued a rating.
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