Model N convertibles on tap; Rivian, Liberty Media offerings eyed; PPL hits new low

By Abigail W. Adams

Portland, Me., March 7 – The convertibles primary market roared into the first full week of March with three deals totaling $2.02 billion on deck.

Model N Inc. plans to price $220 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.875% to 2.375% and an initial conversion premium of 30% to 35%, according to a market source.

Goldman Sachs & Co. LLC, Jefferies LLC and RBC Capital Markets LLC are bookrunners for the Rule 144A deal, which carries a greenshoe of $33 million.

Rivian Automotive Inc. plans to sell $1.3 billion of six-year green convertible notes and Liberty Media Corp. plans to price $500 million of five-year convertible notes after the market close on Tuesday.

The deals looked cheap based on underwriters’ assumptions, sources said.

While books on both the Rivian and Liberty offerings closed in the early afternoon, Rivian was heard to have played to tepid demand.

The deals came as Federal Reserve chair Jerome Powell sank the recently improved market sentiment by warning of higher rates.

There was heavy selling in equities following Powell’s mid-morning comments with the Dow Jones industrial average closing Tuesday down 575 points, or 1.72%, the S&P 500 index down 1.53%, the Nasdaq Composite index down 1.25% and the Russell 2000 index down 1.02%.

It was a “tough day” in the secondary space with the market weak, a source said. However, given the nature of Powell’s testimony, “it could arguably be a lot worse,” the source said.

The secondary space remained relatively quiet with $61 million in reported volume about one hour into the session and $485 million on the tape about one hour before the market close.

PPL Capital Funding Inc.’s 2.875% convertible notes due 2028 (Baa1/BBB+) continued to see heavy volume with the notes dragged down to a new low during Tuesday’s session.

Sea Ltd.’s 0.25% convertible notes due 2026 also saw heavy volume after a large earnings beat sent the company’s equity soaring.

Rivian eyed

Rivian plans to price $1.3 billion of six-year green convertible notes after the market close on Tuesday with price talk for a coupon of 4.125% to 4.625% and an initial conversion premium of 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of an 850 basis points credit spread and a 45% vol., a source said.

Using those assumptions, the deal was pegged as 1.25 points cheap at the midpoint of talk assuming a normal borrow.

With a tougher borrow, the deal was seen as 0.5 point cheap at the midpoint of talk.

However, the deal was heard to be playing to tepid demand with the offering not attracting the outright interest anticipated.

Books closed on the offering in the early afternoon; however, allocations will be hedge heavy, a source said.

Sources were wary of the EV startup, which has a solid balance sheet with $12 billion on the books and a large market cap.

However, the company also has a high cash burn rate and used to have a much larger market cap.

“There are some things to like and some things not to like,” a source said. “A convert could be a good way to play the name.”

“It’s a prickly one,” another source said. The borrow rate is not great and the company’s stock is down about 80% since its IPO in late 2021.

Rivian’s stock hit a 52-week low on Tuesday with stock closing the day at $14.64, a decrease of 14.54%.

Liberty Media demand strong

Liberty Media plans to sell $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 3.5% to 4% and a fixed initial conversion premium of 30%.

The notes are convertible into Liberty Media’s series A Liberty SiriusXM common stock.

The deal was heard to be in the market with assumptions of a 325 bps credit spread and a 24% vol., according to a market source.

The deal modeled cheap, but the market is saturated with Liberty paper and the latest “John Malone special” was not particularly interesting, a source said.

Malone is the chairman of Liberty Media, which is a frequent issuer in the convertible bond market.

However, the deal is coming as a refinancing with proceeds to be used to repurchase Liberty’s 1.375% cash convertible notes due 2023 in privately negotiated transactions and settle exchanges or repurchases or redeem the company’s 2.125% exchangeable senior debentures due 2048.

The deal played to solid demand during bookbuilding, which was largely driven by the refinancings.

PPL’s new low

PPL’s 2.875% convertible notes due 2028 hit a new low in heavy volume on Tuesday.

The 2.875% notes sank 1 point outright with stock down a little more than 2%.

The notes were changing hands at 97 versus a stock price of $26.81 in the late afternoon, according to a market source.

There was $31 million in reported volume with nine trades on the tape.

PPL’s stock traded to a high of $27.55 and a low of $26.79 before closing at $26.88, a decrease of 2.18%.

While the notes have struggled over the past week and a half, Tuesday marked the lowest outright level for the notes since the $1 billion issue priced at par on Feb. 22.

Sea’s earnings

Sea’s 0.25% convertible notes due 2026 gained outright as stock soared following a surprise earnings beat.

The long-busted convertible notes gained 1.5 points outright with stock up more than 20%.

They were trading at 77.5 versus a stock price of $81.32 in the late afternoon.

There was $15 million in reported volume.

Sea’s American Depositary Shares traded to a low of $68.69 and a high of $81.52 before closing at $80.06, an increase of 21.78%.

The Singapore-based tech conglomerate’s equity soared after it trounced expectations with earnings.

Sea reported earnings per share of $1.01 versus analyst expectations for losses per share of 55 cents.

Revenue was $3.45 billion versus analyst expectations for revenue of $3.05 billion.

Mentioned in this article:

Liberty Media Corp. Nasdaq: LSXMA

Model N Inc. NYSE: MODN

PPL Capital Funding Inc. NYSE: PPL

Rivian Automotive Inc. Nasdaq: RIVN

Sea Ltd. NYSE: SE

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