Rivian in focus; new offering looks cheap; outstanding notes cheapen; Hannon sinks

By Abigail W. Adams

Portland, Me., Oct. 5 – The convertibles primary market broke its silence with Rivian Automotive Inc. testing the market with its $1.5 billion offering of seven-year green convertible notes.

The primary market has been dormant for more than one week as Treasury yields hit a multi-decade high.

Market players have questioned what pricing would look like amid the dramatic repricing in the market over the past two weeks.

The one-time speculative credit Rivian came with the answer.

Rivian’s offering looked cheap based on underwriters’ assumptions and played to strong demand particularly from hedge accounts attracted to the high vol. name.

However, there was some trepidation surrounding the deal with stock cratering during Thursday’s session.

Rivian and the EV sector in general are beholden to future capital raises to sustain their operations, a source said.

With rate risks increasing as the market prices in the Fed’s higher-for-longer scenario, the equity of companies’ dependent on future capital raises have been getting clocked.

Rivian’s stock was among the largest losers in equity markets on Thursday with indexes seeing another topsy turvy session.

Equity indexes sank deep into the red mid-session but were lifted into the close to end the day mixed.

The Dow Jones industrial average closed Thursday down 10 points, or 0.03%, the S&P 500 index closed down 0.13%, the Nasdaq Composite index closed down 0.12% and the Russell 2000 index closed up 0.14%.

There was $481 million on the tape about one hour before the market close with Rivian’s outstanding 4.625% convertible notes due 2029 dominating activity.

The 4.625% notes sank double digits on an outright basis and contracted on hedge in the heavy volume.

Outside of Rivian, the secondary space was quiet with high-grade names remaining active.

Hannon Armstrong Sustainable Infrastructure Capital Inc.’s 3.75% exchangeable notes due 2028 (Baa3) continued to set new outright lows in heavy volume with the market pricing in a dividend reset for the company’s stock.

Rivian eyed

Rivian plans to price $1.5 billion of seven-year green convertible notes after the market close on Thursday with price talk for a coupon of 3.125% to 3.625% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 750 basis points over SOFR and a 45% vol.

The offering looked 1.5 points to 3 points cheap at the midpoint of talk, sources said.

The offering played to solid demand.

It was appealing to holders of Rivian’s 4.625% convertible notes due 2029, who were offered an opportunity to switch out of the high dollar-price bonds for a more balanced convertible note.

The deal was also attractive to hedge accounts with Rivian a high vol. name.

While vol. assumptions are typically capped at 45%, some pegged the vol. of the stock much higher.

“This is a wild one,” a source said. “Some people have big dreams for the stock.”

However, rate risks for the company are high with Rivian in need of future capital raises to sustain its operations.

Rivian’s stock has seen a massive run since July when deliveries blew past expectations.

The 4.625% notes were trading on a 96-handle in June before stock added more than 100% in a single month.

The 4.625% notes shot as high as 160 amid the bull run in stock before leveling off around 140.

However, the 4.625% notes sank double digits on an outright basis as stock collapsed during Thursday’s session.

The 4.625% notes were off more than 24 points outright with stock down more than 20%.

The notes were seen at 117.625 versus a stock price of $18.66 in the late afternoon.

The notes contracted about 0.75 point on the move down, a source said.

Rivian’s stock traded to a high of $21.39 and a low of $18.01 before closing at $18.27, a decrease of 22.88%.

In addition to the convertible notes offering, Rivian lowered its sales forecast for the quarter, which contributed to the sell-off in the stock.

Hannon Armstrong’s new low

Hannon Armstrong’s 3.75% exchangeable notes due 2028 continued to hit new lows with the notes tumbling another 4 points outright to break below an 81-handle.

The 3.75% notes traded as low as 80.875 early in the session.

They were changing hands at 81.25 versus a stock price of $13.99 in the late afternoon, according to a market source.

The yield was 8.5%.

Hannon Armstrong’s stock traded to a low of $13.77 and a high of $15.32 before closing at $14.36, a decrease of 6.87%.

The renewable infrastructure REIT’s stock has plunged about 40% since late September when NextEra Energy announced a projected dividend cut.

The market has also been expecting a dividend reduction from Hannon, which would be a bonus for the convertible arb players, a source said.

Mentioned in this article:

Hannon Armstrong Sustainable Infrastructure Capital Inc. NYSE: HASI

Rivian Automotive Inc. Nasdaq: RIVN

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