SpaceX sold $25 billion in bonds and investors lined up like it was a f*cking sneaker drop. Huge demand. Analysts immediately warned about capital spending risks, refinancing risks, and investor concentration risks. So the three things you'd expect from a company selling $25 billion in debt.
The phrase "drove heavy demand" is doing a lot of work here. Retail bond buyers saw Elon Musk's name attached to a debt instrument and apparently forgot that bonds are a legal obligation to pay money back. With interest. At specific dates. Regardless of whether a rocket explodes or Twitter still exists.
Concentration risk means too many people own the same thing. When everyone wants in, analysts call it demand. When everyone wants out, they call it contagion. Same people. Same instrument. Different paragraph in the Bloomberg terminal.
Capital spending risk is Wall Street for "they might spend all this money on something stupid." Refinancing risk means "they might need to borrow more money later to pay back this money." Both risks were apparently acceptable to investors who saw a $25 billion bond sale and thought yeah, I want a piece of that action.
The analysts issued their warnings after the sale closed. Very helpful. Like a smoke detector that only beeps after the house burns down.
Somewhere a financial advisor is explaining to his client that SpaceX bonds are a safe diversification play because space is the future. The client nods. The client has never read a bond prospectus. The client will not start now. The client thinks yield means good.
SpaceX now has $25 billion in new obligations and a waiting list of people who wanted to give them more.
Photo by Sven Piper on Unsplash
Leave a Comment