Coinbase Plans To Raise $1B Through Convertible Debt Offering

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Cryptocurrency exchange Coinbase has announced plans to raise $1 billion through a convertible debt offering, following in the footsteps of Michael Saylor’s MicroStrategy. 

By raising capital through convertible convertible bonds, Coinbase can avoid any adverse impact on its stock price. 

Coinbase To Raise $1 Billion 

Coinbase announced the proposed private offering in an announcement published on the 12th of March, stating that it is open only to investors classified as “qualified institutional buyers.” This move allows Coinbase to avoid an equity sale that could have adversely impacted its stock price. 

“Coinbase Global, Inc. (“Coinbase”) (Nasdaq: COIN) today announced its intention to offer, subject to market conditions and other factors, $1.0 billion aggregate principal amount of Convertible Senior Notes due 2030 (the “notes”) in a private offering (the “offering”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act of 1933.”

According to Coinbase, the unsecured convertible notes can be converted into shares of the issuing company (or cash) at a certain point. The company has said that the notes will mature on the 1st of April, 2030. 

“Coinbase also expects to grant the initial purchasers of the notes a 30-day option to purchase up to an additional $150.0 million principal amount of notes solely to cover over-allotments. The notes will be senior, unsecured obligations of Coinbase, will accrue interest payable semi-annually in arrears and will mature on the 1st of April, 2030, unless earlier repurchased, redeemed or converted.”

A Similar Approach To MicroStrategy 

By turning to the debt market to fund its crypto business, Coinbase is taking a leaf out of MicroStrategy’s playbook. Michael Saylor’s MicroStrategy has purchased over 205,000 Bitcoin, which is now worth over $15 billion. Much of these purchases were funded by MicroStrategy’s sale of over $2 billion of convertible notes. The company sold $700 million of convertible notes just this month, with high demand allowing it to sell more than the initially anticipated $600 million. 

Steps To Reduce Dilution 

Coinbase is going the extra mile to reduce dilution when the debt is converted into equity by offering negotiated capped call transactions. This is essentially a hedge that prevents dilution during the conversion of notes, something MicroStrategy did not do in its latest deal. Issuers can use these hedges with convertibles to prevent dilution to existing shareholders, even if their share price rises above the conversion price. 

The move by Coinbase comes amidst a staggering rally in the price of Bitcoin, taking it to an all-time high of $73,000. Bitcoin is up by 67% this year, while Coinbase’s stock has risen by 48% in the same period. Coinbase has stated that it will use the proceeds from the offering to repay debt, pay for potential capped call transactions, and acquire other companies. 

Lawsuit Against SEC 

It also emerged that Coinbase had filed a lawsuit against the United States Securities and Exchange Commission, seeking a court directive for the SEC to establish clear regulatory guidelines for crypto. Coinbase challenged the SEC’s lack of formal rulemaking for the crypto ecosystem, stating that the agency’s inaction was proving to be a roadblock in the industry’s development.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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