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Coinbase announced on Tuesday its intention to raise $1 billion through a convertible bond offering available exclusively to qualified institutional buyers.
The company intends to use the proceeds from this offering for various corporate purposes, including debt repayment and general operational expenses.
Debt Repayment and Strategic Hedging
The notes, maturing on April 1, 2030, will be senior, unsecured obligations of Coinbase, accruing interest payable semi-annually. They will also be convertible into cash, shares of Coinbase’s Class A common stock, or a combination thereof at the exchange’s discretion. Specific terms such as the interest rate and initial conversion rate are yet to be determined and will be established upon the pricing of the offering.
Coinbase also plans to enter into privately negotiated capped call transactions with initial purchasers, their affiliates, and other financial institutions. These transactions aim to hedge against potential dilution to Coinbase’s Class A common stock upon conversion of the notes. The company also anticipates engaging in derivative transactions concerning its Class A common stock coinciding with the pricing of the notes.
Proceeds from the offering will primarily be allocated towards the repayment, repurchase, or redemption of existing debt instruments, including 0.50% Convertible Senior Notes due 2026, 3.375% Senior Notes due 2028, and 3.625% Senior Notes due 2031.
Coinbase also intends to use the funds for general corporate purposes, including working capital and capital expenditures, to cover the costs associated with the capped call transactions.
Coinbase’s Strategy
Coinbase is adopting a financial strategy akin to that of MicroStrategy. The largest corporate holder of Bitcoin has procured 205,000 BTC, valued at almost $15 billion. The company has predominantly utilized the sale of convertible notes to finance these acquisitions, amassing over $2 billion in funding.
This month alone, MicroStrategy successfully sold $700 million of convertible notes, surpassing the initially projected $600 million due to high demand. By opting for convertible bonds over equity issuance, Coinbase aims to prevent dilution of existing shareholders’ ownership, a concern that often accompanies stock sales.
The announcement comes amid a bullish run in the cryptocurrency market, with Bitcoin reaching an all-time high above $72,000. This surge has propelled Coinbase’s stock price, prompting some Wall Street analysts to revise their outlook on the company. Raymond James and Goldman Sachs, initially bearish on Coinbase, have upgraded their stance, citing the favorable market conditions and Coinbase’s positioning within it.