Morgan Stanley is helping Elon Musk’s company xAI raise $5 billion through a mix of bonds and two loan options, according to sources. This move comes amid rising tensions between Musk and U.S. President Joe Biden. Last week, the bank began discussions with investors about a floating-rate term loan priced at 97 cents on the dollar, offering 700 basis points above the SOFR benchmark. Another option being offered includes a combination of loans and bonds at a fixed 12% interest rate. These terms are still subject to change depending on investor interest.

Unlike past deals, Morgan Stanley is not committing its own capital or guaranteeing the full debt amount. Instead, it's using a "best efforts" approach, where final funding depends on market demand—a cautious strategy given current economic uncertainty. This approach helps the bank avoid a repeat of the 2022 Twitter (now X) deal, where it and other banks were locked into a $13 billion loan commitment they couldn’t offload for two years due to rising interest rates and company restructuring. The debt from that deal was only sold earlier this year, helped by improved performance at X and Musk’s visible support for Donald Trump, which attracted investor interest in AI and political influence.

In addition to the debt raise, xAI is reportedly seeking up to $20 billion in equity funding, with valuations discussed between $120 billion and $200 billion. Although Musk once considered merging xAI with X to attract funding, that plan was dropped. Recent tensions between Musk and Trump have cast uncertainty over his businesses, potentially affecting government deals and investor confidence, and possibly leading to higher risk premiums on new debt.