Rivian Slides After Plans of $1.5B Convertible Bond Sale

Shares of Rivian Automotive Inc. dropped in pre-market trading on Thursday after the US electric vehicle (EV) maker announced its plans to sell $1.5 billion worth of convertible debt and forecast a surge in third-quarter revenue.

Rivian’s stock lost as much as 9.2% to $21.50 in the previous session following the news. The shares last stood 8.8% lower at $21.61 in pre-market trading. The stock has gained around 29.0% as of Wednesday’s close.

The Irvine, California-based company stated that it intends to issue green convertible senior bonds that will mature in October 2030 as a private offering to selected institutional investors.

Green bonds are known for providing companies the opportunity to increase debt for a lower cost from investors willing to accept less profit in exchange for aiding in green projects.

However, convertible notes can become dilutive securities when converted into shares, and investors usually have a negative opinion about them when sold.

Buyers can convert the bonds into cash or shares in Rivian, while initial investors can purchase another $225 million of the notes.

Rivian Maintaining Financial Stability

Rivian’s latest planned green bond offering followed a $1.3 billion bond sale conducted in March that the EV maker said would support the release of its smaller R2 family vehicles.

According to a spokesperson of Rivian, the offering aims to curb risk associated with the rollout of R2 in Georgia, stating that their main goal is to keep a “conservative balance sheet.”

The company has found itself in the same situation as its EV rivals, where it is experiencing a cash burn to ramp up output and avoid falling behind market front-runner Tesla Inc., which has carried out price reductions amid concerns over weakening EV demand in the US.

Rivian said its cash balance stood at approximately $9.1 billion as of the end of September, sliding from the $10.2 billion recorded in June.

The EV maker also expects third-quarter revenue of between $1.29 billion and $1.33 billion against the nearly $540 million in 2022.

Earlier this week, Rivian surpassed delivery estimates for the three-month period ending September 30, as it boosted production to keep up with the constant demand for its pickup trucks and sport utility vehicles (SUVs) in the face of increased borrowing costs for consumers.