*

Morgan Stanley ( MS ) markets $5 billion xAI debt with floating

and

fixed rate options

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xAI seeks $20 billion equity funding, valuation discussed

as

high as $200 billion

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The offering comes amid a public dispute between Musk and

Trump

By Matt Tracy, Echo Wang and Tatiana Bautzer

NEW YORK, June 10 (Reuters) - Morgan Stanley ( MS ) is

marketing a $5 billion package of bonds and two loans on behalf

of billionaire Elon Musk-owned xAI, at the same time as a

falling out between the world's richest man and the U.S.

president plays out in public, sources familiar with the matter

told Reuters.

As of last week, the bank started discussing a floating-rate

term loan B at 97 cents on the dollar with a variable interest

rate of 700 basis points (bps) over the SOFR benchmark rate, one

person familiar with the matter said.

It is offering a second option, loan and bonds at a fixed

rate of 12%, the person familiar added. The terms are

preliminary and will depend on investor demand, according to the

source. Morgan Stanley ( MS ) held a meeting with investors last week

in which some financials of the company were shared.

Morgan Stanley ( MS ) is taking a different approach in marketing

the $5 billion debt for Musk's xAi from previous transactions,

sources familiar with the matter told Reuters.

Morgan Stanley ( MS ) will not guarantee the issue volume or commit

its own capital to the deal, the sources said. The 'best

efforts' transaction, which means the size of the debt will

depend on investor interest, is not an uncommon practice but

shows banks are probably being more prudent lending in an

uncertain macro environment.

The people spoke on condition of anonymity because the

discussions with investors are not public. Morgan Stanley ( MS )

declined to comment, while xAI did not immediately respond to a

request for comment.

Banks were also likely choosing this approach to avoid

putting themselves in a similar spot to when they committed to

give $13 billion of debt to Musk to finance his $44 billion

acquisition of X in 2022 and could not get out of that position

for two years.

The X financing is considered one of the boldest bets by

seven banks led by Morgan Stanley ( MS ) who committed $13 billion in

debt to the $44 billion acquisition by Elon Musk in October

2022. Soon after the deal to buy Twitter, as X was called at the

time, the Federal Reserve began raising U.S. interest rates and

Musk started restructuring the company.

Banks typically sell such loans to investors soon after the

deal is done, but in the case of X, they were stuck holding it

for over two years.

They could only dispose of that debt earlier this year

capitalizing on X's improved operating performance over the

previous two quarters as traffic on the platform rose before and

after the U.S. presidential elections.

Musk's role in U.S. President Donald Trump's return to

office and public displays of his closeness to the most powerful

position in the world also boosted interest for the debt from

investors jockeying for some influential link to a new regime,

as well as a surge in investor interest for exposure to

artificial intelligence companies.

Apart from selling debt, xAI has also been in talks to raise

about $20 billion in equity funding, according to people

familiar with the matter. Two of the people added the deal would

value the company at more than $120 billion, while the other two

people said figures as high as $200 billion had been discussed.

Musk initially explored raising funds in parallel with a

merger of xAI and social media platform X, but that plan did not

move forward, two of the people said.

What has changed in just the space of a few months is Musk's

political sway over Trump after an acrimonious schism erupted

between the two. That has cast a cloud over the future of the

businesses owned by the world's richest man, which though

private could be hurt if the federal government chooses to

cancel contracts or grants to them.

It has also heightened the risk of demand being reduced for

any money that will be raised or investors asking for a higher

risk premium on the new debt.