SpaceX debt builds on $4 trln Jenga tower

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The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Robert Cyran
NEW YORK, June 23 (Reuters Breakingviews) - Is Elon Musk likely to repay his debts in full and on time? Fitch, Moody's and S&P ​Global Ratings think so. All three credit assessors deemed SpaceX's SPCX.O inaugural bonds to be investment grade, indicating relatively low default risk. That's despite the fact that the rocket, satellite and AI venture incinerates cash, and is projected to do so for years. Its balance sheet has been fortified, and now holds over $100 billion of cash, following an initial public offering earlier this month. Lenders also will be comforted that their money is senior to the equity, and that the company can always sell more stock. It’s a dangerous game of Jenga, however, hinging on one key piece.
SpaceX's finances look absurd, in both good ways and bad. For example, it’s generally poor form if a company’s debt and capital expenditure exceed revenue. Musk's outer-space juggernaut is expected to burn up $28 billion this year, a sum projected to swell to $90 billion in 2028, S&P estimates. Still, the rocket operation dominates the business of launching payloads into orbit and its Starlink satellite broadband network throws off a growing sum of EBITDA. Moreover, the inaugural bond issuance is mostly going to pay off a $20 billion bridge loan, which accounts for the bulk of its existing debt.
Over the longer run, things look dicier. All three credit-rating agencies say a substantial portion of SpaceX’s capital expenditure is discretionary and Musk can pare back if needed. It also can sell more stock if needed. Yet the company’s $2 trillion valuation is built on the belief that Musk will defy economic gravity and build data centers in space, that its lagging AI models will catch up to rivals, or that it will colonize Mars. Slashing investment might shake that faith. Selling more shares also could aggravate a downward spiral at a company dependent on raising cash.
The greeting SpaceX's debt receives matters because OpenAI and Anthropic will probably play the same dangerous game. The two AI ventures are privately valued at nearly $1 trillion apiece, and have more in common with Musk's outfit than rivals like Amazon.com AMZN.O in terms of cash flow. Large IPOs would similarly beef up balance sheets and facilitate bond sales to fund further growth. Supporting the whole edifice, however, is widespread belief that these companies will fulfill their heady valuation promise. Pull that piece out, and the towers will wobble.
     
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CONTEXT NEWS 
SpaceX on June 22 unveiled plans to issue bonds for the first time, selling senior unsecured notes to repay a $20 billion bridge loan due in 2027.
The rocket and AI company's borrowing follows a June 18 decision from credit agencies Fitch, Moody's and S&P ​Global Ratings to rate the debt as investment-grade. It also raised $85 billion in an initial public offering on June 11. 
BofA, Citigroup, JPMorgan, Goldman Sachs and Morgan Stanley provided the bridge financing and are expected to run the bond deal, Reuters reported on June 18, citing an unnamed source.

(Editing by Jeffrey Goldfarb; Production by Maya Nandhini)
((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))