Coinbase junk bonds falter amid market crisis and creditor fears

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The price of Coinbase’s junk bonds is falling amid an underwhelming first-quarter performance and concerns about what could happen in the event of a bankruptcy.

According to Trace Bonds bond trading data, since the May 10 Q1 report, both of Coinbase’s junk bond offerings are down about 17% and 5.2%, respectively, standing at $63 and 62.31 at the time of writing $. Overall, they’re down 20% and 19%, respectively, since the start of this month.

Junk bonds are a form of corporate debt issued by non-investment grade companies. Companies borrow a specified amount of money through the junk bond offering and set a maturity (return) date and an interest rate, which they pay on top of the principal borrowed.

Because junk bonds have lower credit ratings, they pay higher interest rates than investment-grade corporate bonds. In the case of Coinbase, around $2 billion was raised in September via two evenly split offerings at 3.375% over seven years and 3.625% over 10 years.

Notably, both junk bond offerings launched at $100 each and have trended steadily down ever since. However, the stronger-than-usual drop this month suggests that investors are losing confidence in Coinbase’s future development.

Coinbase’s (COIN) share price is also down 20% since the date of the Q1 report, despite earlier bearish investor sentiment, with the price down a whopping 50% since early May.

Disclosure of Bankruptcy Proceedings

The major crypto exchange posted Q1 losses of $430 million on a 27% drop in revenue compared to the first quarter of 2021.

Shortly after the report’s release, concerns were raised about disclosure in the Q1 report of the fate of the user’s assets should the company “become subject to bankruptcy proceedings”.

The disclosure noted that in the event of the company’s bankruptcy, the user’s digital assets held on the platform could be “subject to bankruptcy proceedings” and treated as “unsecured creditors.”

This seemed to prompt concerns on two ends of the spectrum, as users feared they might not be able to retrieve their assets if Coinbase were to disband. But Bond hodlers seemed concerned at the idea that users could still have some claim on Coinbase’s fortunes, as they expect to be ahead of them down the T-line.

However, Coinbase CEO Brian Armstrong tried to allay fears after noticing this Twitter that “we do not have bankruptcy risk, but we have included a new risk factor based on an SEC requirement called SAB 121.”

Related: Crypto-associated stocks plummeted as COIN and HOOD fell to record lows

Earlier this morning, Armstrong also shared a note about the events of the past week.

The CEO called for calm, although he admitted that “it can be scary to see our share price fall with all the negative headlines that come with it,” as he hinted that the company can weather the current market downturn:

“In times like these we have to step back and zoom out. Nothing has changed at Coinbase this week, we are the same company as yesterday or a year ago. Rather, given our balance sheet, we are in an even stronger position.”

“This latest bull cycle has generated tremendous gains and cash that contributes to our resilience and we’ve built an incredible team with some of the best talent in the world,” he added.