BAC Bank of America Corporation

By Sam Goldfarb and Andy Pasztor 

Elon Musk's SpaceX raised $250 million from its first-ever high-yield loan sale, shrinking the size of the loan by $500 million after the company encountered a mixed reception from investors and worsening credit-market conditions.

The loan, facilitated by Bank of America Corp. and slated to fund general corporate purposes, opens a new avenue for fundraising for SpaceX as it looks to pay for massive projects demanding many billions of dollars over the next few years.

Based in Hawthorne, Calif., SpaceX makes money by launching commercial and government satellites but has larger ambitions of sending astronauts into orbit and eventually carrying humans to Mars. It has previously relied on private-equity funding that has valued the company at more than $20 billion.

Formerly known as Space Exploration Technologies Corp., SpaceX marketed its loan only to a select group of investors.

Some investors who were offered the loan expressed misgivings about the company's record of burning through cash and its experience with high-profile accidents, which have previously led to dips in revenue. Other concerns include the company's large investment plans and its connection to Mr. Musk, the founder and chief executive of SpaceX, whose volatile behavior has led to turmoil at the electric-car maker Tesla Inc., where he also is chief executive.

Still, the loan intrigued some, based in part on SpaceX's lofty equity valuation, which implies its assets are worth more than its debt. SpaceX also holds a prominent position in a business with high barriers to entry.

Doug Wooden, a senior analyst at DDJ Capital Management, said DDJ had been interested in buying the loan based on the value of SpaceX's core business. The firm passed on the debt only after it was shrunk to $250 million, because that promised to make it harder to trade in the secondary market, he said.

The environment for issuing new bonds and loans has deteriorated in recent weeks, making SpaceX's debt sale more difficult. Demand for loans has generally outpaced other fixed-income assets because their variable-rate coupons rise as the Federal Reserve lifts benchmark interest rates. Even so, the average price of loans in the S&P/LSTA Leveraged Loan Index has dropped by 0.3 percentage point over the past week to 97.7 cents on the dollar as of Monday, according to LCD, a unit of S&P Global Market Intelligence, indicating investors see greater risk in the asset class.

The SpaceX loan was issued late Monday at 99 cents on the dollar with a coupon of 4.25 percentage points above the benchmark London interbank offered rate. That was at the high end of original guidance.

In a gesture to investors, the company also tweaked how the loan document defines SpaceX's earnings before interest, taxes, depreciation and amortization, or Ebitda -- which could potentially constrain the company's ability to issue more debt in the future by increasing its calculated leverage.

Despite shrinking the size of the loan, Bank of America received more than $750 million in orders from investors for the debt, according to a person familiar with the situation, enough to sell the loan at its original size. SpaceX decided to go with the smaller loan because it is comfortable with its cash-generating ability, the person said. Issuing less debt could also make it easier for SpaceX to revise the terms of the loan later if market conditions improve, investors noted.

SpaceX's existing businesses currently take in revenue of about $2.5 billion a year, according to industry officials. Profit margins are constrained in part by a payroll of some 7,000 employees, the cost of operating three launchpads and expenditures for developing a fourth site. In years when it suffered rocket explosions, SpaceX has lost money.

Mr. Musk and his team are pushing ahead with a multibillion-dollar plan to launch more than 7,000 small communication satellites into low-earth orbit. And another part of the company is proposing to spend many times that sum over the next 10 to 20 years to develop and test the BFR, a mammoth rocket and capsule larger than any built before, to transport people to Mars.

Over the years, Mr. Musk has talked about the importance of maintaining focus on Mars exploration and said such ambitious goals wouldn't be supported if the company went public or if his controlling stake was diluted. Now, though, according to some industry analysts and aerospace industry officials, the loan appears to be part of a shorter-term initiative to accelerate development of a full-size version, or perhaps smaller, less-capable test, of what was formerly the BFR.

--Soma Biswas contributed to this article.

Write to Sam Goldfarb at sam.goldfarb@wsj.com and Andy Pasztor at andy.pasztor@wsj.com

(END) Dow Jones Newswires

November 20, 2018 16:26 ET (21:26 GMT)

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