By Jonathan Schwarzberg and Kristen Haunss
NEW YORK, Nov 9 (LPC) - Billionaire Elon Musk's rocket and spacecraft company SpaceX is testing lenders' risk appetite as it seeks to raise a US$750m term loan that will give the company additional balance sheet cash.
Privately-owned Space Exploration Technologies Corp is still burning through cash as CEO Musk aims to develop a rocket capable of flying paying customers to the moon and eventually to Mars.
Goldman Sachs originally started premarketing a US$500m loan to select investors and was in the market with the deal in late October, sources familiar with the matter said.
Goldman took Musk's automotive and energy company Tesla public in 2010, led a US$1.8bn bond sale for the electric carmaker last year, and advised on Musk's brief attempt to take Tesla private for US$420 a share in August.
However, on November 6, Bank of America Merrill Lynch sent a notice to investors that it planned to hold a lender meeting in New York Wednesday to launch a US$750m loan.
Sources said that BAML had made a more compelling pitch and had offered to increase the size of the deal to US$750m.
A leveraged finance banker away from the deal said that BAML believed that there was plenty of demand for the debt, which allowed a bigger loan.
“There's a reason the size jumped,” the banker said, adding that the deal appeared to be going well.
SpaceX is offering to pay lenders 400bp-425bp over Libor with a 0% floor and a discount of 99. This is well above the average spread of 384bp in the US leveraged loan market, according to data from LPC.
“I think our market is showing receptiveness to untraditional companies at a price,” an investor said.
BAML is marketing the SpaceX deal with positive Ebitda of approximately US$268m over the last 12 months, which gives the company a leverage ratio of 2.8 times if the loan is US$750m, bankers said.
However, that number is made with a series of adjustments, and Ebitda would be negative if those adjustments are excluded, the investor said.
While it is still unusual for companies without a proven track record of profitability to visit the market, more leveraged loans for young high-tech companies are appearing.
Ride-hailing service Uber accessed the loan market in June to reprice a loan and the bond market in October with its first notes offering. Office sharing company WeWork also sold bonds earlier this year.
Musk has experience in raising debt for early-stage companies - Tesla sold US$1.8bn of 5.3% senior notes in August 2017 and has also sold convertible notes.
“It's a brave new world,” said another loan investor. “I think there are some companies in this new economy space that are really interesting and this is why you're seeing Uber and WeWork and even Tesla . . . able to line up debt.”
Investors said SpaceX is tapping the leveraged loan market at a good time as new deal activity has been limited following the launch of a trio of big buyout deals in September including the sale of Refinitiv, Thomson Reuters' former finance and risk unit, Azko Nobel's chemicals unit, and physician outsourcing services provider Envision Healthcare.
Uber repriced its US$1.13bn term loan in June to 350bp over Libor, from the 400bp over Libor rate that it initially paid in July 2016 in a deal that raised eyebrows due to the company's lack of an established track record of profitability. Uber had negative Ebitda in 2016.
As Uber demonstrated, a lack of positive earnings will not necessarily deter investors from buying SpaceX's loan. A worst-case scenario of enterprise value versus debt can be used to determine ultimate creditworthiness, the first investor said.
“You need to be able to see a way to profitability,” the investor said.
Goldman Sachs and BAML declined to comment. SpaceX did not return requests for comment. (Reporting by Jonathan Schwarzberg and Kristen Haunss Editing by Tessa Walsh and Michelle Sierra)