Coinbase to raise $1.25B via debt securities for institutional investors

United States-based cryptocurrency exchange Coinbase seeks to raise $1.25 billion in funds through a proposed private offering for institutional buyers. 

According to an announcement on May 17, the offering will be in the form of convertible senior notes due 2026, available only for institutional investors who manage a minimum of $100 million in securities issued by other companies. These investors are defined as such pursuant to Rule 144A of the U.S. Securities Act.

A senior convertible note is a debt security that entitles its holder to a stream of interest payments. Coinbase outlined the specific terms of its offering:

“Coinbase also expects to grant the initial purchasers of the notes a 30-day option to purchase up to an additional $187.5 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 June 1, 2026, unless earlier repurchased, redeemed or converted. The notes will be convertible into cash, shares of Coinbase’s Class A common stock, or a combination thereof, at Coinbase’s election.”

According to the announcement, the interest and initial conversion will be set upon the pricing of the offering. Since news of the offering, markets have continued to react poorly to Coinbase (COIN) shares, which had already dropped to $245 in conjunction with a 35% decrease in the price of Bitcoin (BTC). 

COIN’s underperformance continues despite the exchange’s exceptional first-quarter results, which were released one week prior to the company’s direct listing on Nasdaq in mid-April. Trading volume was up 276% with quarterly revenue hitting $1.8 billion. 

However, some analysts judge that Coinbase’s share price is likely to decline to as low as $100, claiming that “the company is unlikely to meet the future profit expectations baked into the stock price.” The analysis rests on the expectation that even with impressive Q1 earnings, competitors and potential future public listings by other crypto firms will likely drive down its future revenues.