Coinbase plans to raise $1 billion through a convertible debt offering, following the path of Michael Saylor’s MicroStrategy.
The offering has an extra provision, “negotiated capped call transactions,” which will ensure less dilution at the conversion.
The raise comes after Wall Street analysts threw in the towel on their bearish stance on the stock.
The only publicly traded cryptocurrency exchange in the U.S., Coinbase (COIN), announced a plan to cash in on the recent rally in digital assets by raising $1 billion through selling convertible bonds, avoiding an equity sale that could hurt its stock price and also following the path Michael Saylor’s MicroStrategy has taken to fund its crypto aspirations.
Coinbase said on Tuesday that it will offer the unsecured convertible senior notes via a private offering. Convertible bonds can be turned into shares of the issuing company (or cash) at a certain point. For the notes Coinbase plans to offer, that conversion year is 2030. Had the company chosen instead to raise money by selling new Coinbase shares, that would dilute the ownership interest of existing shareholders – something investors may view unfavorably.
By tapping the debt market to fund its crypto business, Coinbase is pursuing a strategy Saylor has pursued at MicroStrategy over the past few years. Saylor’s company has purchased 205,000 bitcoin, which are now worth nearly $15 billion, much of which is funded by MicroStrategy’s sale of more than $2 billion of convertible notes. Just this month, MicroStrategy sold $700 million of them, and there was enough demand that the company could sell more than the originally anticipated $600 million.
Coinbase is taking an extra step to reduce the dilution when its debt is converted into equity by offering “negotiated capped call transactions” – essentially a hedge to prevent dilution during the conversion of notes. (MicroStrategy did not include such a provision in its most recent deal.)
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Issuers use these hedges with convertible debt to prevent dilution to existing shareholders, even when their share price…
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