Short answer:
The $2.6 billion of 0 % convertible senior notes will add a sizable amount of senior debt to Coinbase’s balance sheet. All else equal, this will push the company’s leverage ratios (e.g., debt‑to‑EBITDA, debt‑to‑Equity, and senior‑debt‑to‑EBITDA) upward unless the proceeds are used to retire existing debt or otherwise generate cash that offsets the new liability. Because the notes are zero‑coupon, the immediate impact on cash‑flow‑based coverage ratios (interest‑coverage, cash‑flow‑to‑debt) will be modest, but the “raw” leverage numbers will rise.
Below is a detailed, step‑by‑step rationale based on the information in the release and typical financial‑reporting conventions.
1. What the offering adds to the balance sheet
| Component | Amount |
|---|---|
| 0 % Convertible Senior Notes – 2029 (10‑yr) | $1.3 billion |
| 0 % Convertible Senior Notes – 2032 (13‑yr) | $1.3 billion |
| Total new senior debt | $2.6 billion |
These are senior unsecured obligations, meaning they sit above any junior debt or equity in the capital‑structure hierarchy. The “convertible” feature means they could become equity in the future if the conversion price is triggered, but until conversion they are recorded as long‑term debt.
2. How a $2.6 billion increase affects common leverage metrics
| Metric | Typical Formula | Effect of adding $2.6 B of senior debt |
|---|---|---|
| Debt‑to‑EBITDA | (Total Debt) ÷ (EBITDA) | Numerator rises by $2.6 B → Ratio ↑ (unless EBITDA grows proportionally). |
| Debt‑to‑Equity | (Total Debt) ÷ (Total Equity) | Same upward pressure on the ratio. |
| Senior‑Debt‑to‑EBITDA | (Senior Debt) ÷ (EBITDA) | Directly increases because the new notes are senior. |
| Interest‑Coverage (EBITDA ÷ Interest Expense) | 0 % coupon → Interest Expense = $0 (until conversion or repurchase). Result: Coverage ratio unchanged or even improved because a larger denominator (EBITDA) is unchanged while interest expense is unchanged. |
|
| Cash‑Flow‑to‑Debt | Operating Cash‑Flow ÷ (Total Debt) | Cash‑flow denominator unchanged; thus the ratio declines (i.e., less coverage). |
| Leverage (Total Debt/Enterprise Value) | Total Debt ÷ EV | Debt rises → Leverage ↑. |
Key take‑away: All pure leverage ratios (debt‑to‑EBITDA, debt‑to‑Equity, senior‑debt‑to‑EBITDA) will increase unless the $2.6 billion of cash is deployed in a way that reduces other liabilities or dramatically expands EBITDA.
3. Potential mitigating factors
| Factor | Why it matters | Likely effect on leverage |
|---|---|---|
| Use of proceeds – if Coinbase uses the cash to pay down existing higher‑cost debt (e.g., revolving credit facility, older higher‑rate bonds) the net increase in total debt could be smaller than $2.6 B. | Off‑setting debt reduces net “new” debt. | Neutral‑to‑slight‑increase or even decrease in leverage depending on the amount retired. |
| Capital‑expenditure or acquisition spending – if the cash funds growth‑initiatives that boost revenue and EBITDA, the denominator in debt‑to‑EBITDA will rise, partially offsetting the higher numerator. | Higher EBITDA reduces leverage ratios. | Mitigating – depends on execution. |
| Zero‑coupon structure – no cash outflow for interest until conversion, preserving free cash flow. | Improves cash‑flow‑to‑debt ratio relative to a coupon‑bearing debt. | Less negative impact on cash‑flow‑based metrics. |
| Convertible feature – if the conversion price is reached, the notes convert to equity, erasing the senior‑debt balance and simultaneously diluting equity. | A conversion event would de‑leverage the balance sheet. | Future reduction in leverage (post‑conversion). |
| Regulatory or accounting treatment – under ASC 470‑20 (or IFRS 9), the fair‑value of the convertible feature is recorded as a liability. The “conversion option” is treated as a liability as well; thus the reported “total debt” includes both the liability for the note and a separate equity component. | The liability portion may be lower than the gross amount (the equity component offsets some debt). | Slightly lower reported debt, but still higher than before. |
4. Expected net impact (based on the information disclosed)
The press release does not specify the intended use of the $2.6 billion, nor does it give a current leverage ratio for Coinbase. Consequently, the only definitive conclusion is that raw leverage (debt‑based) metrics will rise unless the proceeds are applied in a debt‑reduction or high‑growth manner that outweighs the added liability.
Because the notes carry 0 % coupon, the interest‑coverage ratio will not be negatively impacted; if anything, the ratio improves because the interest expense numerator is zero (until conversion or early redemption). However, cash‑flow‑to‑debt will deteriorate unless cash‑flow rises proportionally.
In the long‑run (post‑conversion), the senior‑debt portion could be eliminated, reducing leverage. The speed of that conversion depends on the underlying stock price relative to the conversion price set in the indenture (information not provided).
5. Bottom‑line take‑aways for investors
| Factor | Implication |
|---|---|
| Higher headline leverage | Investors should expect a higher debt‑to‑EBITDA and debt‑to‑ equity ratio in the next 12‑24 months. |
| No immediate interest cost | Cash‑flow impact remains modest; interest‑coverage remains strong. |
| Potential for future de‑leveraging | If the stock price performs and conversion is triggered, the senior debt disappears, improving leverage in the longer term. |
| Strategic flexibility | The 0 % coupon gives Coinbase “cheap” financing; if the cash is deployed into revenue‑generating initiatives, the leverage increase may be justified and could be offset by higher EBITDA. |
| Risk | If the proceeds are used for cash‑burn or non‑productivity purposes, the increased leverage may raise credit‑rating concerns and increase cost of future financing. |
TL;DR
- Immediate impact: the addition of $2.6 billion of senior convertible debt will raise Coinbase’s leverage ratios (debt‑to‑EBITDA, debt‑to‑Equity, senior‑debt‑to‑EBITDA) unless offset by debt repayment or significant EBITDA growth.
- Interest‑coverage: essentially unchanged (0 % coupon), so cash‑flow coverage is not hurt.
- Long‑term: conversion to equity would erase the senior debt and reduce leverage, but that depends on the stock price and conversion terms (not disclosed).
In short, the company’s leverage ratios are expected to increase in the near‑term, while the zero‑coupon feature mitigates cash‑flow‑based concerns and provides an upside‑potential de‑leveraging path if conversion occurs.