The day before yesterday it was announced that the popular American cryptocurrency exchange Coinbase wanted to raise $1.5 billion through a debt offering. Since then, the company has seen tremendous demand for its junk bond offerings, prompting the company to increase sales by one-third, from $1.5 billion to $2 billion.
Strong support from debt investors
According to the Economic Times Investors are said to have placed orders for at least $7 billion with 7- and 10-year maturities since Coinbase was announced. The interest rates for this are 3.375 and 3.625% respectively.
According to an anonymous source, the interest rates are said to be cheaper than the initial quotes offered by Coinbase. This suggests that buyers have a higher opinion of the company’s creditworthiness than initially suspected by the crypto exchange.
In addition, strong demand would show “great support from debt investors,” said Bloomberg intelligence analyst Julie Chariell.
What are junk bonds anyway?
Junk bonds refer to corporate debt issued by a company that does not have an investment-grade credit rating. This is true for Coinbase, as their rating would have fallen one rank below investment grade. According to Bloomberg indexes, comparable debt offerings would yield an average return of 2.86%. Coinbase is therefore expected to be slightly above this. Due to the lower creditworthiness, junk bonds tend to have higher yields than investment-grade corporate bonds.
The bullish investor sentiment surrounding Coinbase comes despite the US Securities and Exchange Commission (SEC) threatening legal action against the crypto exchange if it launches a USDC lending product. Prior to the SEC’s warning, the exchange planned to launch its crypto lending product ‘Lend’ in just “a few weeks”. However, it remains to be seen whether this lending product will actually be launched.