Elon Musk's xAI is planning to pay back $3 billion of junk bonds early, a move that signals the artificial intelligence startup is preparing for a potential initial public offering. The company, which recently merged with SpaceX, will redeem the high-yield bonds at about 117 cents on the dollar, representing a significant premium over their June issuance price.

These securities were sold with the expectation they would remain outstanding for at least two years, making the early redemption unusual in corporate finance. The notes have traded up recently, jumping about 3 points to almost 117 cents on the dollar, according to Trace pricing data. When companies repay bonds early, they typically must pay penalties and compensate investors for lost interest.

The combined entity carries about $18 billion in debt from xAI and Musk's Twitter acquisition, which was rebranded as X and later folded into xAI. This debt buyback comes as Musk's bankers are working on a financing plan to address the heavy interest costs accumulated by these companies in recent years.