‘A Lot of Leeway’: SpaceX’s High-Grade Debt Brings Out Skeptics

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(Bloomberg) — When Moody’s Ratings first evaluated Nvidia Corp. almost a decade ago, it settled on a Baa1 investment-grade rating, taking comfort in its relatively light debt load and more than $1 billion of free cash flow after 16 years as a public company.

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Last week, Moody’s gave Elon Musk’s SpaceX — despite a limited public financial record, “sustained negative free cash flow” and years of heavy capital spending still to come — the same Baa1 rating.

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It is, in many ways, a testament to just how much trust credit markets are putting in Musk and the almost fantastical scope of his ambitions: reusable rockets, a globe-spanning satellite network, artificial intelligence and even data centers in space. Bond investors are lining up to provide the company about $20 billion of financing, and potentially more, as soon as Tuesday.

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In equities, that kind of leap is routine. Buyers pay for big stories in hopes of explosive gains. Yet it’s far rarer in investment-grade credit, a corner of Wall Street built around steady cash flows, manageable leverage and dependable, albeit more modest, returns.

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“This should be a phenomenal opportunity in the equity side over the next 10 or 20 years,” said Sal Naro, chief investment officer of Coherence Credit Strategies. “On the fixed-income side, it appears that the agencies are giving them a lot of leeway and a lot of positivity for events that are going to happen in the near- or middle-term.”

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For Moody’s, and likewise S&P Global Ratings and Fitch Ratings, the investment-grade case rests more on what SpaceX does have that few borrowers can match: a dominant launch provider central to the US space program, a Starlink satellite network throwing off billions in recurring revenue and access to enough liquidity to keep funding its AI expansion.

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To read Moody’s SpaceX credit report, click here

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Still, SpaceX lacks some hallmarks of a typical high-grade borrower. It is spending heavily, burning through cash and relying on future growth to make the numbers work.

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S&P, which grades SpaceX one notch lower than Moody’s at BBB, expects the company to remain cash-flow negative until 2030, with the burn rate rising sharply next year and again in 2028. To help finance that gap, SpaceX is expected to lean much more heavily on debt, with borrowings climbing to $132 billion in 2028. That’s up from close to zero now after adjusting for cash and lease liabilities, according to S&P.

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Balancing those risks against SpaceX’s market position made for an unusually complicated rating debate, Naveen Sarma, S&P’s primary analyst for SpaceX, said on a webinar, calling it “one of the more interesting committees I’ve had in my 20 years at S&P.”

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Representatives for Moody’s, S&P and Fitch didn’t respond to requests seeking comment beyond their rating statements. SpaceX, officially named Space Exploration Technologies Corp., didn’t respond to a request for comment outside of normal business hours.

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‘Leap of Faith’

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Ross Pamphilon, chief investment officer for fixed income at Impax Asset Management, said SpaceX is asking investors to finance a business that is both unusually strong and unusually hard to model.