Morning Commentary: MicroStrategy returns; Coinbase volatile outright, up on hedge

By Abigail W. Adams

Portland, Me., March 14 – The crypto craze continued to sweep through the convertibles primary and secondary markets with MicroStrategy Inc. slated to price its second convertible notes offering in as many weeks post-close Thursday and Coinbase Global Inc.’s heavily sought after deal making its aftermarket debut.

After pricing an $800 million offering last Tuesday, MicroStrategy has returned to the market with a $500 million offering of seven-year convertible notes with proceeds to again be used to up the company’s Bitcoin holdings.

MicroStrategy’s latest deal comes with slightly tighter terms than last week’s offering but still modeled cheap and is expected to play to heavy demand, especially given the spectacular aftermarket performance of the 0.625% convertible notes due 2030.

While market players eyed MicroStrategy’s latest offering, new paper from Coinbase made its aftermarket debut.

Coinbase’s offering was heavily oversubscribed with the deal upsizing and the coupon pricing through the rich end of initial talk.

The new paper hit the secondary space on a weak open for equities although Bitcoin maintained its recent strength.

The Dow Jones industrial average was down 70 points, or 0.18%, the S&P 500 index was down 0.23%, the Nasdaq Composite index was down 0.01% and the Russell 2000 index was down 1.37% shortly before 11 a.m. ET.

Bitcoin hit a new all-time high of $73,650 early Thursday although it pulled back to trade at 71,474, a decrease of 1.16%, shortly before 11 a.m. ET.

Coinbase’s new notes were dominating activity in the secondary space and accounted for more than 50% of the $183 million in reported volume about one hour into the session.

The notes were volatile on an outright basis although they were making large dollar-neutral gains on debut.

MicroStrategy deja vu

MicroStrategy plans to price $500 million of seven-year convertible notes after the market close on Thursday with price talk for a coupon of 0.375% to 0.875% and an initial conversion premium of 40% to 45%.

The deal was heard to be in the market with assumptions of 350 basis points over SOFR and a 50% vol.

Using those assumptions, the deal looked about 2 points cheap at the midpoint of talk, a source said.

MicroStrategy’s latest offering may have been the quickest re-tap of the market on record with the company pricing $800 million of 0.625% convertible notes due 2030 on March 5.

The latest offering is coming with slightly tighter terms.

Price talk for MicroStrategy’s 2030 convertible notes was for a coupon of 0.5% to 1% and an initial conversion premium of 37.5% to 42.5%.

The notes priced at par with a coupon of 0.625% and an initial conversion premium of 42.5%.

However, the previous offering was marketed with the same assumptions and also modeled 2 to 2.5 points cheap at the midpoint of talk.

With the 0.625% convertible notes due 2030 already in-the-money, MicroStrategy’s latest deal is expected to also see strong demand.

The 0.625% convertible notes were slightly weaker on the heels of the new offering.

They were trading at 135.375 versus a stock price of $1,659 early in the session.

There was $7 million in reported volume.

MicroStrategy’s stock was trading at $1,667.50, a decrease of 5.59%, shortly before 11 a.m. ET.

Coinbase volatile

Coinbase priced an upsized $1.1 billion of six-year convertible notes after the market close on Wednesday at par with a 0.25% coupon and an initial conversion premium of 32.5%.

Pricing came through the rich end of talk for a coupon of 0.5% to 1% and at the rich end of talk for an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $165 million.

The initial size of the offering was $1 billion with a greenshoe of $150 million.

The deal played to heavy demand with the offering heard to be as much as 5x oversubscribed, a source said.

The new paper dominated activity in the secondary space.

While volatile on an outright basis, the 0.25% convertible notes saw a large dollar-neutral expansion.

The notes were marked at 102.375 bid, 102.875 offered out of the gate and traded as high as 103 with stock up shortly after the opening bell.

However, the notes dived as low as 98 as Coinbase’s stock plunged 6% a short time later.

The notes regained their footing and traded back up to par shortly before 11 a.m. ET.

They expanded a few points dollar-neutral, a source said.

There was $100 million in reported volume.

Coinbase’s stock was changing hands at $238.55, a decrease of 5.24%, shortly before 11 a.m. ET.

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