Mar 14, 2024 - Economy

Coinbase seizes moment with upsized $1.1 billion convertible bond sale

Illustration of the Coinbase logo being lifted by a stock trend line

Illustration: Annelise Capossela/Axios

Coinbase's fresh $1.1 billion convertible bond offering says more about traditional corporate finance than it does crypto.

Why it matters: The U.S.'s largest crypto exchange is drawing more than just bitcoin investors — with its stock surging alongside the world's largest digital asset, the company's gaining traction with a more conservative crowd: bond investors.

Between the lines: Coinbase is selling so-called hybrid debt, with equity-like features, earmarking proceeds to pay down its existing debt and to hold in reserve for possible future acquisitions.

  • The offering, which was upsized last night by $100 million, comes while shares of Coinbase Global sit at highs — which tracks with the firm's history of tapping that corner of capital markets when its stock is doing well.
Coinbase Global stock price
Data: Yahoo Finance; Chart: Axios Visuals

How it works: Convertible bonds are often tapped by Technology and biotechnology companies as they offer relatively lower rates than straight debt, and it's the corner of capital markets that's open to them.

  • Certain investors like convertibles for their bond- and stock-like qualities — the bond pays fixed-income interest, but also, the right to convert it into shares if a certain price is struck, or what's called the conversion premium.

It's a balancing act, because Coinbase would want the lowest coupon (the interest it pays to holders), and the highest conversion premium (minimizing the risk of equity dilution) they can get, without turning off potential buyers.

By the numbers: Last night the company announced that the new convertibles will have a 0.25% coupon, cheaper than the 0.5% coupon on the bonds coming due in 2026, which it sold back in May 2021.

  • The conversion price is set at $333.54 per share, meaning that's what its stock would have to hit before holders of the bond converted it to equity. That's a 32.5% premium to yesterday's price of $251.73.

Zoom in: That conversion price is below Coinbase's all-time high of around $357 struck Nov. 2021. In the 2021 sale, investors got a roughly 55% conversion premium.

Shares of Coinbase took a small dip after the initial convertible announcement Tuesday — a normal market reaction to a debt offering. They're trading down over 9% again Thursday following the pricing announcement Wednesday night.

The big picture: Coinbase's financials look fine: It had roughly $3 billion in outstanding long-term term debt at its last reporting period, excluding any crypto asset borrowing, and more than $5.1 billion in cash and cash equivalents.

💭 Crystal's thought bubble: Coinbase is simply cleaning up house, the routine capital management that companies do.

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