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Rivian is raising more cash via a green convertible notes offering.
Courtesy Rivian
Electric truck start-up
Rivian Automotive
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.
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