SpaceX, a company whose market value once eclipsed that of Amazon and, at a fleeting peak, even surpassed Microsoft's. While it may one day reclaim such heights, its valuation has currently plunged 38% from its post-IPO peak.
Investors fortunate enough to receive an allocation at the initial public offering currently see a modest paper gain of just 0.8%. But what about the situation for bondholders?
The issuance of SpaceX's 2056-maturity bonds was impacted by a wave of debt sales from major technology giants, launching at a hefty 175 basis point premium over comparable U.S. Treasury notes. Admittedly, this pricing was slightly tighter than the initially rumored 200 basis point premium. As is common practice in debt capital markets, underwriters often set an attractive initial price range to generate investor interest before tightening the spread slightly during the book-building process.
As previously reported, the $25 billion multi-tranche benchmark bond had a dismal start in its first two trading sessions. A review of the market now shows that weak beginning was merely a prelude to a subsequent steep decline.
If an investor had been allocated $100 million of the SpaceX 2056 bonds, that holding would have shrunk to approximately $90.7 million in less than a month. While a broad sell-off in long-dated bonds and falling Treasury prices contributed to some of the loss, the primary driver—accounting for over two-thirds of the decline—has been a significant widening of the bond's credit spread. This spread, representing the extra yield investors demand for taking on risks like default, has ballooned from the initial 175 basis points to 231 basis points.
For those unfamiliar with bond markets, such a rapid and substantial spread widening is highly unusual. In the nine trading days since the bond was included in a key Bank of America ICE bond index at the end of June, the SpaceX 2056 bond has been the worst performer among all U.S. dollar-denominated BBB-rated benchmark bonds.
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