SpaceX's credit default swap reached a peak on reports that it had raised $40 billion

SpaceX's credit risk metric has reached a new high, and the company's bonds have fallen in price on the secondary market following reports that it is in talks with banks and investors to raise $40 billion to purchase Nvidia chips, according to Bloomberg.

The cost of five-year credit default swaps (CDS) on SpaceX’s debt rose by 16.7 basis points during trading on October 7, reaching approximately 197.6 basis points per annum, according to Bloomberg, citing data from ICE Data Services. In other words, insuring $10 million of SpaceX debt against default cost about $197,600 per year at the peak. This is the highest intraday level since trading in these instruments began in June, the agency notes, pointing out that the rise in CDS prices indicates growing investor concerns about the company’s credit risk.

This sentiment also affected the bonds of tech and media giants: bonds issued by SpaceX, Meta Platforms, and Skydance fell in price, Bloomberg reports. The spread between the yield on SpaceX bonds maturing in 2036 and the yield on U.S. Treasury bonds with a comparable maturity widened by 5 basis points to 193 basis points, according to data from the Trace system. When these bonds were issued in June, the spread stood at 140 basis points. The widening of the spread indicates that investors are demanding a higher premium for holding SpaceX debt compared to Treasuries, the agency notes.

Reports that SpaceX is considering raising $40 billion to purchase Nvidia chips—which could be one of the largest debt-financed deals in AI development—have sparked growing concern among investors, Bloomberg notes. The Financial Times reported this the day before, citing sources. The deal is expected to be led by Apollo Global Management, the newspaper noted. Negotiations are in the early stages and may end without an agreement, Bloomberg reports. The financing in question could include approximately $10 billion in bank loans and $30 billion in investment-grade debt.

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