Despite stock price falter, investor demand forces Coinbase to raise debt offering to $2B

  • Coinbase has increased its debt offering from the previous $1.5 billion to $2 billion following heightened investor interest.
  • The exchange plans to use funds acquired to further product development, investments, and future mergers and acquisitions.

US’ largest crypto exchange Coinbase Global Inc., announced Tuesday it’s increasing its debt offering to $2 billion. Initially, the company had cited a $1.5 billion offering but has since raised the bar due to market interest.

According to the company, the junk bonds will have two maturity years – one in 2028 and the other in 2031. At least $7 billion worth of orders were placed in competition for equal quantities of these bonds.

Of note, the interest rates were 3.375 percent and 3.625 percent for the seven and ten-year bonds respectively. These rates together with redemption provisions were determined during negotiations with the initial buyers. However, an anonymous source tells that the interest rates were cheaper than initial Coinbase quotes. Buyer influx likely made them hold a higher opinion of the exchange’s creditworthiness than the firm itself.

Coinbase debt offering

Notably, Coinbase said the senior bonds will be the first to be paid should the company go bankrupt. Funds raised will be used in the company’s investments and potential acquisitions and mergers. Funds will also be used in developing new technologies and products.

“This capital raise represents an opportunity to bolster our already strong balance sheet with low-cost capital,” Coinbase said in its initial press release on Monday.

Nevertheless, the S&P Global Ratings agency rates the bonds BB+. This puts them a rank below the investment grade, implying a higher risk to their owners. Bloomberg bond indexes also indicated that such debt offerings fetch a 2.86 percent yield on average. S&P Global stated on its website;

Our ratings on Coinbase reflect the company’s very low leverage, strong liquidity, significant scale with a solid share of crypto assets on its platform, and strong track record of avoiding security breaches since inception,

Moreover, S&P says their rating was affected by the heavy reliance Coinbase has on transaction revenue. Volatility in earnings due to high turbulence in crypto asset trading volumes also came into play. Moreover, the firm has a “relatively short track record operating at such high volumes and avoiding security breaches at elevated volume levels, which also weighs on the rating,” the rating firm added.

Growth and regulation

After MicroStrategy, Coinbase is the second major crypto company to complete a junk bond offering. The former issued $500 million worth of notes to further its Bitcoin accumulation during the June crypto market crash.

Coinbase is also the only publicly listed cryptocurrency exchange globally. The company’s shares began trading on the NASDAQ in February, opening at $342. The shares last traded at $243.

Despite the SEC’s most recent threats towards Coinbase, investors still exude a bullish market outlook in the firm. The regulator warned the company of a lawsuit should it launch its yield farming program as it intended to do in “a few weeks.”

Related: Coinbase comes under SEC fire as Gensler claims the exchange has securities listed as tokens

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