Bond navigators: SpaceX-ecution risk

Against a backdrop of dramatically rising demand for funding, the primary bond market continues to attract large, high-profile, yet sometimes nascent, technology companies.

We have seen a number of US mega caps test investor appetite with sizeable bond deals and, most recently, Space Exploration Technologies Co, better known as SpaceX, launched its eye-catching debut bonds. This landed with considerable media hype and was met by strong investor demand.

With extensive experience of lending to corporates, across many different market and economic cycles, the less mundane reality is that however fast technology may change, the fundamental truths of credit analysis remain stubbornly consistent. SpaceX once again offered a timely reminder that credit investors always need to look through the headlines and focus on underlying fundamentals. This is unlikely to grab the same attention, but for us the deal raised important questions around cash generation, leverage and execution risk.

For background, SpaceX came to the market in June with a five-part US dollar offering sized at $25 billion across multiple short- and longer-term tenors. This follows its recent blockbuster initial public offering (IPO) that valued the company at over $2 trillion. SpaceX was given inaugural credit ratings of Baa1, BBB+, and BBB by the three major credit rating agencies, which are supported by a debt/enterprise value of just 1%, a dominant market position across its space and connectivity units, and strong liquidity, underpinned by the $86 billion raised from its IPO.

Despite reported orders hitting around $90 billion, we chose not to take part in the deal for three reasons.

1. First, the company is generating deeply negative free cash flow (FCF). For 2025, operating cash flow was $6.8 billion versus a capital expenditure (capex) of $19.6 billion – which is up 90% year-on-year. This negative FCF is expected to persist until at least 2028, due to the company’s massive capex requirements across its AI, space, and connectivity units – and there are estimates that capex could total as much as $300 billion between 2026-2028 as the company aims to deliver on its growth initiatives.
2. Second, management has indicated that capex will be funded with customer cash flows and debt, claiming that equity raises will only come as a last resort, which could strain an already high gross leverage.
3. Finally, there are also clear governance concerns, given that a single person (Elon Musk) is chair, chief executive and chief technology officer, and holds about 80% of voting rights in the company.  These factors have contributed to MSCI awarding SpaceX the lowest possible ESG rating of CCC.

Although the equity market is clearly accepting that current investment will deliver significant future growth and is prepared to reward this expectation with astronomical valuation multiples, the more prosaic reality is that credit risk is much more asymmetrically skewed. It is therefore incumbent on us, through the application of our established credit research framework, to focus on the most tangible and immediate fundamentals.

While Moody’s forecasts 2028 revenue to exceed $140 billion, a 600% increase on 2025 revenue, this is heavily dependent on the execution of three growth initiatives: Starship commercialisation; next-generation Starlink constellation deployment; and large-scale AI infrastructure buildout, which clearly comes with significant execution risk. As a consequence, we felt the rating of BBB+ may not prove truly reflective of the wider credit profile and potential future volatility.

Buoyed by the IPO momentum, the bonds’ credit spreads at issue reduced significantly compared to initial price talk. And although they provided a small premium to much more established, and less levered, technology and infrastructure issuers, we felt they were not reflective of the current level of uncertainty embedded in the company’s balance sheet and, as a consequence, the outlook for creditors. As ever, it is vital that credit investors keep their feet on the ground in order to deliver sustainable returns.

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.