SVB implodes; high-grade rated convertibles in focus; Rivian closes week with losses

By Abigail W. Adams

Portland, Me., March 10 – Investment-grade rated convertible notes dominated the tape on Friday as credit and equity markets reeled following the collapse of Silicon Valley Bank.

In less than 36 hours, SVB Financial Group went from an investment-grade rated company to a delisted stock with its subsidiary Silicon Valley Bank in FDIC receivership.

It was the first FDIC-insured bank failure since 2020 and the largest since Washington Mutual’s collapse in 2008.

The implosion coincided with an attempted $2.25 billion capital raise that included the convertible market’s first mandatory offering of the year.

“The deal is not getting done,” a source said.

While equity markets were holding early in the session after SVB’s plummeting stock dragged down markets on Thursday, news of the FDIC receivership sank equities.

The Dow Jones industrial average closed Friday down 345 points, or 1.07%, the S&P 500 index closed down 1.45%, the Nasdaq Composite index closed down 1.76% and the Russell 2000 index closed down 2.95%.

Treasuries were catapulted higher with the 10-year yield falling 22 basis points to 3.69% and the two-year yield falling 29 bps to 4.58%.

Investors were moving to a safer safe haven than the banking sector, sources said.

While spreads were getting tighter amid the move in Treasuries, corporate bonds were not responding.

“Stuff is getting wider,” a source said. “Anyone hedged with investment grade got hurt today.”

There was $420 million on the tape about one hour before the market close with the recently priced investment-grade convertible notes accounting for nearly ¼ of the total volume.

PPL Capital Funding Inc.’s 2.875% convertible notes due 2028 (Baa1/BBB+) and Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) were holding up well amid the heavy volume with the notes largely unchanged on an equity hedge but lagging the bond market.

Rivian Automotive Inc.’s 4.625% convertible notes due 2029 tumbled to a new outright low and contracted dollar-neutral with the notes closing a volatile week with losses.

High-grade in focus

The recently priced investment-grade rated convertible notes dominated the tape on Friday amid a massive move in Treasuries sparked by SVB’s collapse.

While the notes saw little movement in dollar price and were largely flat on an equity-hedge, they were lagging on credit, a source said.

Southern Co.’s 3.875% convertible notes due 2025 continued to trade on a 98-handle.

They were changing hands at 98.5 versus a stock price of $63.88 in the late afternoon.

There was $51 million in reported volume.

Southern Co.’s stock traded to a low of $63.63 and a high of $64.90 before closing at $63.94, a decrease of 0.95%.

PPL’s 2.875% convertible notes due 2028 remained on a 96-handle.

They were trading at 96.625 versus a stock price of $26.12 in the late afternoon.

There was $44 million in reported volume.

PPL’s stock traded to a low of $26 and a high of $26.70 before closing at $26.25, down 1.24%.

While the notes were lagging the move in the bond market, they were holding up well, a source said.

“As long as it’s not bank paper,” the source said.

Rivian closes with losses

Rivian’s 4.625% convertible notes due 2029 closed a volatile week with losses with the notes tumbling below par and contracting dollar-neutral.

The 4.625% notes opened the day with gains with stock popping into positive territory.

They were changing hands just shy of 101 versus a stock price of $14.70 early in the session.

However, the notes fell 1.75 points outright with stock down 2.5% by the close.

The notes were seen at 98.75 versus a stock price of $14.17 in the late afternoon.

They contracted about 0.375 point dollar-neutral.

Rivian’s stock traded to a low of $14 and a high of $14.90 before closing the day at $14.16, a decrease of 2.55%.

Rivian’s 4.625% convertible notes have been volatile since hitting the secondary space on Wednesday.

While the notes were weak out of the gate, they recovered and logged solid outright and dollar-neutral gains on Wednesday and early Thursday.

However, the notes were dragged as SVB’s implosion rattled market and closed the week with losses.

Rivian priced the $1.3 billion issue at par on Tuesday. A greenshoe exercise later lifted the deal to $1.5 billion.

Mentioned in this article

PPL Capital Funding Inc. NYSE: PPL

Rivian Automotive Inc. Nasdaq: RIVN

Southern Co. NYSE: SO

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