SVB mandatory set to price amid ‘scary’ drop in stock; Model N, Rivian notes volatile

By Abigail W. Adams

Portland, Me., March 9 – While broader markets remained laser focused on the macro data that will determine the Federal Reserve’s next move, new paper remained in focus in the convertibles space.

The primary market is believed to be pricing a $500 million offering after the market close on Thursday after $2.02 billion in three deals cleared the market thus far this week.

SVB Financial Group is on deck with a $500 million offering of $50-par three-year depositary shares representing a 1/20th interest in the company’s $1,000-par series F mandatory convertible preferred stock.

While the deal was expected to play to strong demand with the offering the first mandatory of the year, SVB’s stock price was more than slashed in half during Thursday’s session – a situation unlike anything industry veterans had seen before.

Books on the deal were heard to have closed at 2 p.m. ET with pricing still expected post-close, despite multiple trading halts on the company’s stock during Thursday’s session.

Meanwhile, new paper from Model N Inc. made its aftermarket debut on a volatile day for equities.

Equity indexes launched the day strong with markets propelled by signs of a weakening labor force following higher-than-anticipated U.S. jobless claims providing some rate concern relief.

However, heavy selling set in midway through the session with SVB’s losses sinking the financial sector.

The Dow Jones industrial average closed Thursday down 544 points, or 1.66%, the S&P 500 index closed down 1.85%, the Nasdaq Composite index closed down 2.05% and the Russell 2000 index closed down 2.79%.

There was $113 million in reported volume about one hour into the session and $446 million on the tape about one hour before the market close.

Model N’s new notes were volatile with the notes launching the day with strong outright and dollar-neutral gains but closing the day largely flat.

Rivian Automotive Inc.’s 4.625% senior notes due 2029 were also volatile their second day in the secondary space with the notes improved early in the session but giving back much of their gains by the close.

New Mountain Finance Corp.’s 7.5% convertible notes due 2025 were active after the company priced a $60 million add-on.

While the notes were trading below their previous level, they were well above the add-on reoffer price.

SVB stock plunges

It was a situation industry veterans had never before seen – a 60% plummet in an investment-grade rated financial services company’s stock on the eve of a concurrent mandatory convertible and follow-on stock offering.

SVB Financial launched a $500 million offering of $50-par three-year depositary shares representing a 1/20th interest in the company’s $1,000-par series F mandatory convertible preferred stock after the market close on Wednesday with pricing expected post-close Thursday.

Price talk was for a dividend of 6% to 6.5% and a threshold appreciation premium of 20% to 25%.

The deal was heard to be in the market with assumptions of 200 basis points over SOFR and a 45% to 43% vol. skew.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk, a source said.

The deal launched alongside a follow-on offering of $1.25 billion shares of common stock.

SVB’s deal is the first mandatory convertible offering of the year and was expected to play to strong demand with several outstanding mandatories in the market set to mature.

However, what happened to SVB’s stock during Thursday’s session was “scary,” a source said.

SVB’s stock plunged more than 60% with trading halted multiple times during the session.

“I’ve never seen anything like this before,” another source said.

Stock traded to a high of $177.75 and a low of $100 before closing the day at $106.04, a decrease of 60.41%.

There were jokes in the market that the destruction in stock would be blamed on the mandatory convertible offering.

However, the heavy selling was sparked by SVB’s simultaneous announcement that dwindling deposits forced it to liquidate its $21 billion for-sale securities portfolio, which held largely low coupon Treasuries, for a $1.8 billion loss.

Given the destruction to SVB’s market cap, sources would normally expect the concurrent offerings to be pulled.

However, the company may have no choice but to complete the offering, a source said.

While the situation was “unsettling,” books for the mandatory were heard to have closed at 2 p.m. ET with no updates to price talk, a source said.

Model N active

Model N priced $220 million of five-year convertible notes after the market close on Wednesday at par with a coupon of 1.875% and an initial conversion premium of 32.5%.

Pricing came at the rich end of talk for a coupon of 1.875% to 2.375% and at the midpoint of talk for an initial conversion premium of 30% to 35%.

The notes were volatile on debut.

They launched the session with strong outright and dollar-neutral gains but then came back and closed the day largely flat.

The notes traded as high as 102.375 early in the session.

They were changing hands at 101.5 versus a stock price of $32.51 shortly before 11 a.m. ET and expanded about 1 point dollar-neutral.

However, the notes gave back their gains as heavy selling swept through the market.

The 1.875% notes were trading at 100.125 versus a stock price of $32.53 in the late afternoon.

There was $17 million in reported volume.

Model N’s stock traded to a high of $33.10 and a low of $32.18 before closing at $32.43, a decrease of 0.15%.

Model N’s latest offering came as a refinancing with a portion of the proceeds used to repurchase for cash $138 million in principal of its 2.625% notes due 2025 for $166.2 million.

The repurchase price appeared to be 119.743, a source said.

Rivian volatile

Rivian’s 4.625% senior notes due 2029 were again volatile their second day in the secondary space with the notes strong early in the session but weak heading into the close.

The 4.625% notes continued their dollar-neutral expansion early in the session.

The notes were changing hands at 103.375 versus a stock price of $15.23 about one hour into the session.

However, they fell alongside stock as heavy selling took hold in equities, giving back their early expansion.

The 4.625% notes were seen at 100.75 versus a stock price of $14.60 in the late afternoon.

There was $24.5 million in reported volume.

Rivian’s stock traded to a low of $14.44 and a high of $15.26 before closing at $14.53, down 3.97%.

The 4.625% notes were also volatile on their aftermarket debut on Wednesday with the notes opening the day weak but closing with outright and dollar-neutral gains.

New Mountain adds

New Mountain’s 7.5% convertible notes due 2025 were active after the company priced a $60-million add-on.

While the notes were trading below their level prior to the add-on, they were well above the reoffer price.

New Mountain announced Thursday it priced a $60 million add-on to its 7.5% convertible notes due 2025 at 100.5 with a conversion premium of 12.5%.

The 7.5% notes changed hands at 101.125 versus a stock price of $12.52 early Thursday.

There was $5 million in reported volume.

New Mountain’s stock traded to a low of $12.24 and a high of $12.70 before closing at $12.32, down 2.22%.

The last reported trade in the issue was at 102.75 on Feb. 28, according to Trace data.

Mentioned in this article:

Model N Inc. NYSE: MODN

New Mountain Finance Corp. Nasdaq: NMFC

Rivian Automotive Inc. Nasdaq: RIVN

SVB Financial Group Nasdaq: SIVB

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