is up 3.7% on news that it plans to raise USD 1 billion through a Convertible debt offering. This allows Coinbase to avoid an equity sale that could hurt its stock price. Coinbase's bond sale is similar to the action that $MicroStrategy(MSTR)$ has taken to fund its crypto aspirations.
The sale of Coinbase is via a private offering. Convertible bonds can be turned into shares of the issuing company or cash at a certain point. For Coinbase the conversion year is 2030. If Coinbase had chosen to raise money by selling new Coinbase shares, this would dilute the ownership of existing shareholders.
Coinbase is taking an extra step to reduce the dilution when its debt is converted into equity by offering "negotiated capped call transactions". This is a hedge to prevent dilution during the conversion of notes.
Issuers use these hedges with convertible debt to prevent dilution to existing shareholders, even when their share price rises above the conversion price, though they have to pay a fee. According to Coinbase the capped call transactions will cover the number of shares of Coinbase's Class A stock that will initially underlie the notes.
The bond issuance comes after a massive rally in Bitcoin which has reached an All Time High above USD 73,000. Bitcoin is up 67% this year while Coinbase has soared by 54%. It is quite common for companies to take advantage of bull markets by raising money by selling new securities such as equity, convertible notes.
Coinbase's USD 1 billion offering comes after some Wall Street Analysts have upgraded Coinbase to buy, citing the massive rally in Bitcoin. Goldman Sachs has upgraded Coinbase to Buy with Target price of USD 282, an upside potential of 16.5%. Another analyst Raymond James has upgraded Coinbase from Underperform to Perform.
It's exciting times ahead for Coinbase with the Bitcoin Rally. Coinbase was up a massive 257% in 2023 and it is off to a good start this year with its share price soaring by 54% year todate.
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