High-grade convertibles eyed; EV industry loses charge; Rivian, Lucid, NIO pressured

By Abigail W. Adams

Portland, Me., Oct. 18 – There was an uptick of activity in the convertibles secondary space on Wednesday with high-grade names in demand amid the downturn in equities and Treasuries.

Equity indexes were heavy and Treasury yields hovered near multi-decade highs as markets once again reassessed their rate hike expectations.

The Dow Jones industrial average closed Wednesday down 333 points, or 0.98%, the S&P 500 index closed down 1.34%, the Nasdaq Composite index closed down 1.62% and the Russell 2000 index closed down 2.11%.

There was $89 million in reported convertibles trading volume about one hour into the session and $418 million on the tape in the late afternoon with the top four names on the tape accounting for almost one-quarter of the total volume.

“Surprise, they’re all investment grade,” a source said.

Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB), CenterPoint Energy Inc.’s 4.25% convertible notes due 2026 (Baa2), Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A) were the high-grade names in focus on Wednesday.

While high-grade issues continued to hold up well amid the downturn in the market, the convertibles secondary space was weak across the board on Wednesday with plenty of sellers in the market.

The EV sector was taking a hit amid the heaviness with Rivian Automotive Inc.’s new 3.625% convertible notes due 2030 giving back recent gains in active trade.

Lucid Group Inc.’s 1.25% convertible notes due 2026 also saw heavy volume with the notes beginning to weaken as stock plunged to an all-time low on missed production expectations.

While volume was light, NIO Inc.’s recently priced convertible notes sank to a new outright low and contracted dollar-neutral.

High grade in focus

High grade names continued to dominate the tape with the notes holding up well amid the uncertainty in the market, a source said.

Several names were unchanged to slightly weaker outright with equity under pressure and credit spreads widening.

Southern Co.’s 3.875% convertible notes due 2025 continued to trade at 98.125, a source said.

The yield was 4.8%.

There was $24 million in reported volume.

Southern Co.’s stock traded to a high of $67.52 and a low of $66.41 before closing at $66.60, down 0.76%.

Duke’s 4.125% convertible notes due 2026 remained wrapped around 97.5 early in the session.

They traded down to 97.25 in the late afternoon.

The yield was about 5.25%.

There was $24 million in reported volume.

Duke Energy’s stock traded to a high of $89.42 and a low of $87.63 before closing at $88.19, off 0.89%.

American Water’s 3.625% convertible notes due 2026 were unchanged outright early in the session at 96.75.

They traded down to 96.25 in the late afternoon as losses mounted for the company’s stock.

The yield rose to 5.125%.

There was $19 million in reported volume.

American Water’s stock traded to a high of $120.49 and a low of $116.46 before closing at $118.14, a decrease of 1.8%.

CenterPoint Energy’s 4.25% convertible notes due 2026 were also unchanged early in the session but leaked as the session progressed.

The notes were seen at 98.75 versus a stock price of $28 about one hour after the opening bell, according to a market source. The notes traded at 98.5 versus a stock price of $27.76 in the late afternoon.

The yield was about 4.75%.

There was $16 million in reported volume.

CenterPoint Energy’s stock traded to a high of $28.06 and a low of $27.50 before closing at $27.68, a decrease of 0.93%.

EV sector loses charge

The EV sector was taking a hit on Wednesday with several names under pressure.

Rivian’s 3.625% convertible notes due 2030 were losing charge after hitting their highest outright level since pricing the previous session.

The 3.625% notes were down 3.75 points outright to trade at 102 versus a stock price of $18.94 in the late afternoon.

They contracted about 0.5 point dollar-neutral, a source said.

There was $11 million in reported volume.

Rivian’s stock traded to a low of $17.90 and a high of $19.73 before closing at $18.09, down 9.1%.

Rivian’s 3.625% notes shot up to 106 the previous session, their highest outright level since pricing at par in early October.

While the notes contracted on Wednesday, they remain positive dollar-neutral since pricing after lagging for their first two weeks in the market.

Lucid’s 1.25% convertible notes due 2026 were beginning to succumb to selling pressure on Wednesday after holding up well amid the destruction in stock the previous session.

The 1.25% notes were changing hands at 58.625 in the late afternoon with the yield 19.375%, a source said.

There was $12 million in reported volume.

Lucid’s stock plunged to an all-time low on Wednesday. It traded to a high of $4.98 and a low of $4.51 before closing at $4.53, a decrease of 9.4%.

Stock has fallen about 14% over the past two sessions after the EV maker released disappointing production and delivery numbers.

However, the heavily busted convertible notes held in well and closed the day largely unchanged at 59.

“Everyone’s trying to figure out if the Saudi put is real,” a source said.

The Saudi Investment Fund is a majority owner of Lucid with a more than 60% stake in the company.

NIO’s recently priced tranches fell to their lowest outright level since pricing and contracted dollar-neutral as the Shanghai-based EV company’s American Depositary Shares sank.

The 4.625% convertible notes due 2030 fell 4.5 points outright to a 94-handle.

They were changing hands at 94.625 in the late afternoon.

The 3.875% convertible notes due 2029 fell 2 points outright to 95.25.

Both tranches contracted about 0.75 points dollar-neutral, a source said.

NIO’s ADRs traded to a high of $8.54 and a low of $7.86 before closing at $7.91, a decrease of 7.27%.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

CenterPoint Energy Inc. NYSE: CNP

Duke Energy Corp. NYSE: DUK

Lucid Group Inc. Nasdaq: LCID

NIO Inc. Nasdaq: NIO

Rivian Automotive Inc. Nasdaq: RIVN

Southern Co. NYSE: SO

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