Electric truck start-up
is getting into convertibles? Well, yes—but not the kind of convertibles car buyers think of when they hear the word.
Rivian (ticker: RIVN) is raising more cash. Investors aren’t too pleased. Monday evening, the EV maker announced plans to raise about $1.3 billion in green convertible senior notes that will mature in 2029.
Convertible notes offer investors the security and interest payments of bonds while also giving them some upside in the performance of a company’s stock. Purchasing a convertible note is like buying debt and a stock option all at once.
The green portion of the offering refers to debt issues that will eventually fund environmentally responsible projects. Rivian, as an EV maker, qualifies. The green designation essentially opens up more potential buyers for the notes. Regular bond investors can purchase them. So can investors who have environment-based mandates.
More buyers can mean a lower cost of debt for the company. Convertible notes are typically less expensive than bonds for a company, too. Convertibles carry lower interest rates than comparable debt. The embedded stock option is worth something to investors.
Companies like convertibles, but stock investors don’t like them as much. Convertible notes can become shares some day, adding to the total outstanding and diluting existing investors’ stakes in a company. Dilution is the likely reason Rivian shares were down 5.5% in premarket trading Tuesday.
futures were up 0.2% and 0.4%, respectively.
Investors might also be confused by the timing of the deal. Why now? Rivian ended the year with more than $12 billion on its balance sheet.
Even though that’s enough money for Rivian to fund operations for a couple of years, it will need more eventually. Wall Street doesn’t project profits or positive free cash flow until the end of the decade. And companies can’t really wait until the 11th hour to raise money. They have to do it when they can.
Rivian didn’t immediately respond to a request for comment about its capital-raising plans.
Terms, such as the rate and conversion ratio, for the new notes aren’t available yet. They will be determined by Rivian’s bankers based on feedback from the market.
Coming into Tuesday trading, Rivian shares were down about 7% so far this year and down about 60% over the past 12 months. Shares are also down about 90% from a record high of $179.47 set shortly after the company’s IPO in November 2021.
Write to Al Root at firstname.lastname@example.org