Full video: Convertible Bond Example (Coinbase)

$1.25B Convertible Bond

Monday May 17th Coinbase breaks $250 for a second time (first on last week thursday the 13th). It was also the saem day it came out with a Convertible Bond issue.

Coinbase Global Inc. said Monday it plans to sell $1.25 billion of convertible debt, the same day its stock closed below its $250 reference price for the first time since the crypto platform listed on the Nasdaq exchange in mid-April.

Terms

Financial Terms

Amount
Closing Date
Maturity Date (1-2 years)
Interest Rate (8% common)

Conversion Terms

Automatic
- Trigger
  - Discount
    - Example: 20% Discount represents (20% * Stock Price = convertable pirce)
  - Valuation "Cap"
    - Example: $3M Cap on 5m shares = $0.60 per share
Optional
- Investor can..
  - Call loan
  - Extend loan
  - Option coversion (usually if things don't gom well)
    - Example: the note will convert to stock if..
Acquisition (while holding note)
- 2x payout of interest and principle is a common case

Rights Terms

Information
- Example: Updates on earnings
Approcal
- Example: veto rights for important decisions
Board Observer
- Example: Can watch meetings but not vote
Pro-rata
- Exampel: Maintain % ownership so have rights to invest more with additional fundraising rounds

Other Terms

Most Favored
- Option to adopt more favorable terms if they are offered in the future
Use of Funds
- Funds will only be used for...
No pre-payment
- Because investor intent is to convert into shares
C-Corp
- Investor requires the company if LLC or Scorp to convert to C-Corp in time of stock conversion (to avoid pass through income)

Why.. Convertible Note/Bond/Debt Pros & Cons

Investors

Big growth potential
Priority incase liquidation + priority over dividend payments
Fixed interest rate + par value returned at maturity (unless default)
Conversion has no tax obligation

Company

Advantages

Delays valuation while getting funding
Legal costs much less
Cheaper than other debt interest rates, such as non-convertable bond
- Reduce payout to investors
When Bond is converted to stock.. no more interest payments
- Reduces debt after conversion
Outstanding shares does not immediately inc. outstanding shares
- Does not reduce EPS