Rivian’s new convertible notes see ‘crazy’ reversal; outstanding notes weaken further

By Abigail W. Adams

Portland, Me., Oct. 6 – There was a single name that occupied the convertibles secondary space’s attention on Friday as topsy-turvy conditions continued to rock equity and bond markets – Rivian Automotive Inc.

Rivian priced $1.5 billion of seven-year green convertible notes after the market close on Thursday.

The new paper hit the secondary space as the latest U.S. nonfarm payrolls report shook markets.

Markets “had a heart attack,” after the release of the report with job growth figures blowing past estimates, a source said.

The report sparked heavy selling in equities and Treasuries early in the session with Treasury yields hitting new heights.

However, an explosion of buyers emerged mid-session with yields coming in from their heights and equity indexes closing the day strong.

The Dow Jones industrial average closed Friday up 288 points, or 0.87%, the S&P 500 index closed up 1.18%, the Nasdaq Composite index closed up 1.6% and the Russell 2000 index closed 0.81%.

There was $100 million in reported convertibles trading volume about one hour into the session and $500 million on the tape about one hour before the market close with Rivian’s convertible notes accounting for more than one-third of the total volume.

“If you’re not playing Rivian, you’re not doing much,” a source said.

Rivian’s new notes saw a brutal start in the aftermarket with stock off another 5% pre-open.

However, the notes saw a strong reversal mid-session as stock bounced back to positive territory.

While the notes recovered on an outright basis, they were contracted dollar-neutral.

Rivian’s outstanding 4.625% convertible notes due 2029 also continued to lose steam on hedge with the notes weaker dollar-neutral amid the volatility in stock.

Outside of Rivian, the tape belonged to high-grade issues, which were active although with little movement in price.

Topical news sparked activity in Pioneer Natural Resources Co.’s 0.25% convertible notes due 2025 (Baa1/BBB) although the deep-in-the-money convertible notes were largely trading with stock.

Rivian ‘crazy’

Rivian priced $1.5 billion of seven-year green convertible notes after the market close on Thursday at par at the cheap end of talk with a coupon of 3.625% and an initial conversion premium of 27.5%.

Price talk was for a coupon of 3.125% to 3.625% and an initial conversion premium of 27.5% to 32.5%.

The large offering was the first convertible deal to come since markets repriced for a higher-for-longer rate environment.

While the offering looked attractive and carried a much-coveted high vol. for hedge funds, the EV maker’s fundamentals were suspect.

Rate risks are high for the company, which will need future capital raises to sustain its operations, a source said.

The offering also clocked the company’s market cap with a 22% drop in stock during Thursday’s session, which wiped out about $6 billion in value.

While the company could not have been happy about the destruction to its stock, the capital raise was most likely an example of the company tapping the market while it was still open.

“Do it when you can, not when you have to,” a source said.

When it came to volatility, Rivian’s new convertible notes did not disappoint.

The new 3.625% convertible notes saw a brutal start in the aftermarket with the notes trading down to a 96-handle pre-open with stock off another 5% pre-open.

“Rivian = bloodbath,” a source said.

However, the notes pared their losses alongside stock.

The notes were trading at 97.875 versus a stock price of $17.78 about one hour into the session and continued to improve as stock swung to positive territory.

The notes traded as high as 101 and were marked at 100.875 versus a stock price of $18.44 in the late afternoon.

“That is crazy,” a source said.

While the 3.625% notes saw large swings in dollar price on Friday, they were weak on hedge with the notes contracted about 0.5 point dollar-neutral.

The notes move on a heavy delta of about 85%, a source said.

Rivian’s 4.625% convertible notes due 2029 remained active on Friday with the notes continuing to weaken on hedge.

They were changing hands just shy of 118 versus a stock price of $18.41 in the late afternoon.

The notes were down another 0.5 point dollar-neutral after falling 0.75 point on hedge the previous session.

There was $27 million in reported volume.

Rivian’s stock traded to a low of $17.65 and a high of $19 before closing at $18.92, an increase of 3.56%.

Pioneer Resources takeover

News that Exxon was nearing a $60 billion acquisition of Pioneer Natural Resources sparked activity in Pioneer’s 0.25% convertible notes due 2025.

The deep-in-the-money 0.25% notes jumped 27 points outright with stock up almost 11%.

They were trading at 254.125 versus a stock price of $238.96 in the late afternoon, according to a market source.

The notes were moving in line dollar-neutral.

Pioneer’s stock traded to a low of $230.69 and a high of $239.48 before closing at $237.43, up 10.45%.

Stock surged following reports that Exxon was nearing a $60 billion acquisition of the oil and gas company.

The convertible notes will be converted out upon the completion of the merger.

Mentioned in this article:

Pioneer Natural Resources Co. NYSE: PXD

Rivian Automotive Inc. Nasdaq: RIVN

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