What impact might the offering have on DigitalOcean's credit rating and cost of capital?

The private convertible‑senior‑notes issuance will add $500 million of senior debt to DigitalOcean’s capital structure, raising its leverage ratio in the short term. Rating agencies typically view a step‑up in senior‑secured debt as a modest credit‑rating pressure point, especially if the proceeds are used to fund growth rather than to refinance higher‑cost existing borrowings. Because the notes are convertible, the effective interest cost is lower than a comparable straight‑bond issue—the coupon is usually set below that of non‑convertible senior debt and the conversion feature caps the upside for investors, which translates into a cheaper overall cost of capital for the company. If DigitalOcean can deploy the proceeds to generate incremental cash‑flow (e.g., expanding its platform, strengthening its balance sheet, or repaying higher‑rate debt), the rating agencies may view the added leverage as “manageable” and keep the current rating unchanged.

From a trading perspective, the market should price in a slightly tighter spread on DigitalOcean’s credit risk as the convertible notes mature in 2030. If the rating holds, the lower‑cost financing can improve the firm’s return on equity and support a higher valuation multiple, creating upside for the equity. Conversely, any sign that the proceeds are being used for cash‑burning initiatives or that the leverage ratio climbs beyond the company’s historical range could trigger a rating downgrade and widen the credit spread, pressuring the stock. Thus, monitor rating‑agency commentary and the company’s post‑offering capital‑allocation plan; a stable rating combined with a reduced weighted‑average cost of capital offers a bullish bias, while any downgrade risk suggests a more defensive stance.