Rivian Stock News: Convertible debt comes for another EV maker as RIVN plunges 9%
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- Rivian stock sells off 9% after company initiates $1.5 billion convertible bond sale.
- If total debt offering eventually gets converted into common stock, existing shareholders may face 7.7% dilution or more.
- Rivian produced more than 16,000 EVs in Q3, beating consensus on deliveries.
- Rivian will offer an additional $225 million in bonds to initial purchasers if demand is there.
Rivian (RIVN) stock has placed its shareholders on a rollercoaster ride this week. The electric vehicle (EV) producer known for its pickup trucks surged 9.2% on Wednesday only to plunge another 9% in the post-market session when it announced a $1.5 billion convertible debt offering.
These types of offerings allow the holder of the debt to convert it into equity, thus are treated as dilution risks. Rivian stock is losing ground in a session that looks mixed. After Wednesday saw investors crowding back into equities amidst a two-month-long downtrend, NASDAQ 100 and S&P 500 futures are mixed but largely flat. Treasury yields are also mixed but placid.
Rivian stock news: Extra $225 million could be added to convertible bond sale
Rivan’s share price predicament is rather predictable. The market usually treats companies with disdain that issue convertible bonds since they are akin to issuing new shares. Fellow Chinese EV automaker Nio (NIO) just raised $1 billion via convertible bonds two weeks ago, and the company’s shares crashed over 17% on the news.
Rivian is initially selling $1.5 billion worth of convertible bonds that mature in October 2030, but its press release also states that it will give initial buyers the right to purchase up to an additional $225 million worth of convertible bonds in the 13 days following the initial sale.
If all $1.725 billion worth of bonds get converted into shares at a later date, then this activity would dilute shareholders by about 7.7%, based on Wednesday’s closing market cap. Of course, the market will change by the time of conversion, so the actual dilution could easily be more or less.
According to the statement from Rivian: “The notes will be redeemable, in whole or in part (subject to certain limitations), for cash at Rivian’s option at any time, and from time to time, on or after October 20, 2027 and on or before the 20th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of Rivian’s common stock exceeds 130% of the conversion price for a specified period of time.”
The conversion price and the coupon rate of the bonds are not yet fixed. Two weeks ago, Nio sold six-year convertible bonds with coupon rates of 3.875% and seven-year bonds with a rate of 4.625%. US Treasuries have seen their yields increase in the past two weeks, so the expectation is that Rivian will have to pay higher interest rates than Nio.
On Monday, Rivian reported third-quarter deliveries that rose 140% from a year ago. The company beat the delivery consensus of 14,900 vehicles with 15,564 delivered in Q3. At its production factory in Normal, Illinois, Rivian produced 16,304 vehicles during the quarter and is on pace to meet its 52,000 production goal for 2023.
Rivian stock forecast
Rivian stock has halted its plunge within the $21 to $22 resistance band that held up a rally back in January and February of this year. There is no particular reason why it should become support this time around, but anything is possible. The late September swing low pushed RIVN stock nearly all the way to $20, so there is no good reason that won’t happen again.
Just below there the $19.50 price level support Rivian stock during its late August doldrums. If $19.50 fails to hold, Rivian could jet all the way back to the $15 range. The area from $15.28 to $15.84 worked as support back in January before flipping into an area of resistance during the March through June period.
The Relative Strength Index (RSI) is showing RIVN stock close to neutral. Dip buyers will likely wait until the convertible bond news tips Rivian stock into an oversold reading on the RSI, which could take a few more sessions of pain.
RIVN daily chart
