Spirit AeroSystems exchangeable notes offering eyed; Rivian volatile; Lucid, Fisker fall

By Abigail W. Adams

Portland, Me., Nov. 8 – The convertibles primary market had one offering on deck on Wednesday from a serial high-yield issuer tapping the convertibles market for the first time.

Spirit AeroSystems Inc. plans to price $200 million of five-year exchangeable notes after the market close on Wednesday.

The offering looked cheap and was heard to be playing to strong demand.

In an unusual move, the company announced a simultaneous $1.2 billion offering of seven-year second-lien senior notes (B3/B-) mid-session.

While the convertibles market did not serve as an either/or for Spirit AeroSystems’ capital market needs, sources expect to see more crossovers from the high-yield market with issuers in search of cheap financing.

The trend could be the start of a new multi-cap arb strategy in the convertibles market, a source said.

Meanwhile, the convertible secondary space continued to see large price swings due to earnings-related volatility.

Equity indexes were again mixed with the small cap index continuing to underperform.

The Dow Jones industrial average closed Wednesday down 40 points, or 0.12%, the S&P 500 index closed up 0.10%, the Nasdaq Composite index closed up 0.08% and the Russell 2000 index closed down 1.19%.

There was $76 million in reported volume about one hour into the session and $605 million about one hour before the market close.

EV-makers were in focus on a heavy day of earnings from the sector.

Rivian Automotive Inc.’s convertible notes were in focus with stock volatile on the heels of earnings.

While the notes made strong gains at the open with stock up more than 7%, they ended the day largely unchanged as stock sank into negative territory.

Lucid Group Inc.’s already beleaguered 1.25% convertible notes due 2026 were under pressure after an earnings miss.

And Fisker Inc.’s 2.5% convertible notes due 2026 sank further into distressed territory after the surprise delay of its earnings report, which was scheduled for Wednesday.

Spirit AeroSystems eyed

Spirit AeroSystems plans to price $200 million of five-year exchangeable notes after the market close on Wednesday with price talk for a coupon of 3.25% to 3.75% and an initial exchange premium of 27.5% to 32.5%.

The company also announced a $200 million follow-on offering of common stock and mid-session Wednesday announced a $1.2 billion offering of seven-year second-lien senior secured notes.

The exchangeable notes offering was heard to be in the market with assumptions of 650 basis points over SOFR and a 42% vol.

Using those assumptions, the deal looked about 5 points cheap at the midpoint of talk, a source said.

The credit assumption seemed overly conservative despite the recent headwinds experienced by the company.

Spirit is a serial high-yield issuer with a large amount of outstanding secured and unsecured debt, including about $1.2 billion in first-lien and second-lien notes set to mature in 2025.

The aerostructure manufacturer has experienced a series of quality control issues that have impacted its relationship with Boeing in recent months, its primary source of revenue.

However, a recent supply agreement with Boeing gave the company a boost with its straight debt trading with a much tighter credit spread than the assumption used for the convertible note offering.

The company’s 4.6% senior notes due 2028 (Caa1/CCC+) currently trade with a spread of 436 bps, a source said.

However, the wide credit spread may have been a method to knock down the coupon of the exchangeable notes, the source said.

While Spirit AeroSystems is the latest crossover issuer to tap the convertibles market for cheap financing, its convertible notes offering was not an either/or between the two markets.

The company announced mid-session a $1.2 billion offering of second-lien senior notes with proceeds to be used to fund a tender offer for its 7½% senior secured second-lien notes due 2025 (B3/B-).

While the mid-session announcement of a straight debt offering was somewhat unusual, it was not unprecedented.

“Their capital structure needs work,” a source said.

Spirit AeroSystems’ market cap of $2.37 billion limited the amount that could be raised through a convertible offering.

The convertible offering played to strong demand with word on the street that the offering was wall-crossed and mostly spoken for at the time of launch.

Pricing was heard to have tightened to a coupon of 3.25% to 3.5% and an initial exchange premium of 32.5%.

Rivian volatile

It was another day of volatile Rivian trades on Wednesday as the EV-maker’s stock swung from outsized gains to large losses post-earnings.

Rivian’s 4.625% convertible notes due 2029 traded up 4 to 5 points outright early in the session with stock up about 7%.

They were down 1 point outright with stock off more than 3% in the late afternoon.

The 4.625% notes were changing hands at 110.625 versus a stock price of $16.69 in the late afternoon, according to a market source.

There was $48 million in reported volume.

Rivian’s 3.625% convertible notes due 2030 jumped 4 points outright to trade above par early in the session.

They were down 1.5 points outright in the late afternoon.

The 3.625% notes were trading at 95 versus a stock price of $16.75 in the late afternoon.

There was $45 million in reported volume.

While the convertible notes were up 0.5 to 0.625 point dollar-neutral early in the session, they closed the day largely unchanged, a source said.

Rivian’s stock traded to a high of $18.77 and a low of $16.33 before closing at $17, a decrease of 2.41%.

Rivian posted a large earnings beat with losses per share of $1.19 versus analyst expectations for losses per share of $1.32.

Revenue was $1.34 billion versus analyst expectations for revenue of $1.31 billion.

The company also released strong production guidance.

However, investor concern over waning EV-demand and the high cash burn rate of the company may have caused the mid-session reversal in the company’s stock.

Lucid’s earnings

Lucid’s already struggling 1.25% convertible notes due 2026 saw more selling pressure after earnings.

The 1.25% notes sank 2 points outright.

The notes were trading at 52.75 with a yield of 23.5 in the late afternoon, according to a market source.

There was $8 million in reported volume.

While the convertibles are not equity sensitive, Lucid’s stock closed Wednesday at $3.95, a decrease of 8.14%.

Lucid was under pressure after the struggling EV-maker posted mixed earnings and cut its production guidance.

Lucid reported losses per share of 25 cents versus analyst expectations for losses of 40 cents.

However, revenue was $137.8 million versus the $193.7 million expected.

Lucid also cut its production forecast to 8,000 to 8,500 vehicles from 10,000.

Fisker’s earnings?

Fisker’s 2.5% convertible notes due 2026 sank further into distressed territory after the surprise delay of its earnings report.

The 2.5% notes fell another 3 to 4 points outright with the notes hitting a new all-time low.

The notes traded as low as 31.375 in intraday activity.

They were changing hands at 32.375 with the yield 49% in the late afternoon, according to a market source.

There was $12 million in reported volume.

While the convertibles are not equity sensitive, Fisker’s stock closed Wednesday at $3.99, a decrease of 8.7%.

Stock collapsed after the EV-maker’s surprise delay of its earnings report, which was slated for release on Wednesday.

Fisker now expects to report earnings post-close on Monday, Nov. 13.

Mentioned in this article:

Fisker Inc. NYSE: FSR

Lucid Group Inc. Nasdaq: LCID

Rivian Automotive Inc. Nasdaq: RIVN

Spirit AeroSystems Inc. NYSE: SPR

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