Kristy Brill, a portfolio manager at Invesco, described SpaceX's bond market debut as "very sloppy" due to the significant underperformance of the bonds after their initial sale. This sentiment comes as SpaceX bonds experienced substantial losses, with some longer-dated notes falling below 96% of their face value. The company's $25 billion debt offering, which priced only a week after its $86.2 billion IPO, almost immediately saw its value erode in the secondary market.
SpaceX's 30-year notes, for example, were trading below 96% of face value, and its 2056 notes saw paper losses of approximately $305 million since trading began. The longest-dated bonds widened as much as 0.28 percentage points past their issue spread. This dramatic weakening in the secondary market is unusual for an investment-grade issuer, leading to astonishment among bond traders who cannot recall a recent investment-grade deal performing so poorly.
Analysts attribute the bond's poor performance to a "perfect storm" of factors, including a $600 billion equity slide, weak technicals from upsized supply due to orders swelling to nearly $90 billion, and confusion over how to price the company's unique risk profile. Despite receiving investment-grade ratings from S&P (BBB), Moody's (Baa1), and Fitch (BBB+), these ratings surprised some observers given SpaceX's projected negative cash flow of almost $230 billion by the end of 2029 and a significant reliance on Elon Musk, which Fitch flagged as a "key rating constraint."
The substantial cash burn is also a concern. S&P projects SpaceX will increase its debt to almost $250 billion by the end of the decade, alongside raising nearly $150 billion in equity. While the company holds a $100.8 billion cash pile from its IPO, much of this will be quickly consumed by its massive investments in space and AI, including funding xAI, which posted a $6.4 billion operating loss last year. The rapid development of a credit default swap (CDS) market for SpaceX, with 5-year protection trading around 141 basis points, further indicates investor demand for hedging against the company's credit risk, signaling a perception closer to a Double B than a Triple B credit.
This immediate bond market turbulence contrasts sharply with the initial hype surrounding SpaceX's IPO and prior offerings. The situation highlights investor anxieties regarding the company's aggressive investment plans, substantial funding requirements, and the uncertainty surrounding its long-term profitability. While management has indicated flexibility to scale back spending, the immediate market reaction underscores skepticism about the company's financial trajectory and its ability to manage its immense capital needs.
