Morning Commentary: Coinbase returns to convertibles market as Bitcoin hits new heights

By Abigail W. Adams

Portland, Me., March 13 – The convertibles primary market returned to action with a sizable offering from a high-profile issuer.

Coinbase Global Inc. plans to price $1 billion of six-year convertible notes after the market close on Wednesday.

The deal looked cheap based on underwriters’ assumptions and was expected to play to strong demand, especially with the phenomenal success of MicroStrategy Inc.’s recently priced 0.625% convertible notes due 2030 and Bitcoin again hitting a new all-time high on Wednesday.

Meanwhile, the secondary space saw an active start to the day as market players awaited the new deal in the works.

Equity indexes were either side of unchanged early Wednesday as markets continue to assess the latest CPI print and its implications for rate cut expectations.

The Dow Jones industrial average was up 125 points, or 0.32%, the S&P 500 index was down 0.03%, the Nasdaq Composite index was down 0.31% and the Russell 2000 index was up 0.66% shortly before 11 a.m. ET.

There was $227 million in reported convertibles trading volume about one hour into the session with high-grade names continuing to drive activity.

However, Coinbase’s 0.5% convertible notes due 2026 were also among the top traders early in the session with the notes softer as accounts switched to the more balanced convertible notes on deck.

Coinbase eyed

Coinbase plans to price $1 billion of six-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%.

The deal was heard to be in the market with assumptions of 400 basis points over SOFR and a 50% vol.

Using those assumptions, sources pegged the deal 1 to 3.5 points cheap at the midpoint of talk.

The crypto craze was changing the vol. standards of the market with both Coinbase and MicroStrategy marketing their offerings with a 50% vol.

Vol. is traditionally capped out at 45%, a source said.

However, the high vol. assumption is well-deserved with some pegging the vol. for Coinbase even higher at 55%, sources said.

The credit spread seemed somewhat conservative with Coinbase’s junk bonds trading tighter.

While the capital raise was coming as a refinancing, the timing was opportunistic with the company tapping the market from a position of strength.

Proceeds are earmarked to repay at maturity or repurchase or redeem prior to maturity the company’s 0.5% convertible notes due 2026, 3.375% senior notes due 2028 and 3.625% senior notes due 2031.

Coinbase’s 0.5% convertible notes due 2026 were weaker in active trade early Wednesday with accounts switching to the new offering.

The 0.5% convertible notes were down about 1 point with stock off slightly early in the session.

They were trading at 106.5 versus a stock price of $254.02 early in the session, according to a market source.

There was $26 million in reported volume.

Coinbase’s stock opened the day in negative territory but shot higher as the session progressed and was changing hands at $268.29, an increase of 4.61%, shortly before 11 a.m. ET.

The 0.5% convertible notes due 2026 carry a higher conversion premium than the notes on deck.

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