New York, September 23, 2022 — Moody’s Investors Service (Moody’s) today confirmed Coinbase Global, Inc.’s (Coinbase) Ba3 corporate family rating (CFR) and Ba2 guaranteed senior unsecured notes’ rating. Coinbase’s outlook was changed to negative from ratings under review. This action concludes the review for downgrade that was initiated on 23 June 2022.
“The confirmation of the ratings is supported by Coinbase’s strong liquidity position, expense management efforts and longer-dated debt maturities” said Moody’s Vice President and Senior Analyst Fadi Abdel Massih. “The outlook is negative because of the challenging crypto asset operating environment which continues to be a drag on Coinbase’s free cash flow generation capacity,” added Massih.
RATINGS RATIONALE
Moody’s said the confirmation of Coinbase’s ratings reflects the effective management of the firm’s liquidity position under the current challenging operating environment for crypto asset platforms. The rating action also reflects Coinbase’s favorable downward revision of its expense guidance announced in August 2022, which resulted in full-year 2022 expense guidance for technology and development and general administrative expenses to a range of $4.0 billion to $4.25 billion, down from a range of $4.25 billion to $5.25 billion previously.
Moody’s said that Coinbase’s June 2022 announcement of an approximately 1,100 employee reduction in its global workforce, in addition to other strategic expense management efforts, is helping to preserve its liquidity position as it manages through the lower crypto asset price and trading volume environment. However, Moody’s expects Coinbase’s profitability to remain significantly challenged, absent a substantial increase in crypto asset prices and trading volumes.
Moody’s said that as at 30 June 2022, Coinbase had $5.7 billion in cash and cash equivalents, a healthy position relative to its $3.4 billion in long-term debt, including the $2 billion rated senior guaranteed notes (due 2028 and 2031). Although Moody’s expects the firm’s cash balances to continue to reduce in the current environment, the firm has a rigorous approach to managing through such stressful periods with an aim towards ensuring it has sufficient cash preservation over the next several years.
Coinbase’s $2.0 billion senior guaranteed notes’ Ba2 rating is a notch higher than Coinbase’s Ba3 CFR, based on the notes’ priority ranking in Coinbase’s capital structure; with the notes ranking ahead of the firm’s $1.4 billion convertible debt notes, which don’t benefit from a guarantee from the firm’s operating entities.
Coinbase’s negative outlook reflects Moody’s expectation that the challenging crypto asset operating environment will continue to be a drag on the firm’s cash flow generation that will slowly erode the firm’s sizeable liquidity position, absent a significant sustained improvement in crypto asset prices and trading volumes. The negative outlook also considers the uncertainty around the developing regulatory landscape for crypto assets and that a further significant sustained decline in crypto asset prices or volumes could increase the firms operating cash deficits and put even more pressure on expense management.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody’s said that Coinbase’s ratings could be upgraded should there be evidence of: 1) cost structure transformation generating reliable profitability in varying crypto asset price and trading volume environments; 2) achieving revenue diversification through the development of profitable new revenue streams not tied to trading volumes, crypto asset prices or the macroeconomic environment, without adding significant credit risk; and 3) increased regulatory clarity for the oversight of crypto asset market structure should it be conducive for price stability and improved trading volumes of traded crypto assets.
Factors that could lead to a downgrade of Coinbase’s ratings include: 1) an accelerated decline in the company’s liquidity position due to a further significant sustained decline in crypto asset prices or volumes, not being matched by further expense reductions; 2) a failure to return to relatively strong profitability and operating cash flow generation despite the ongoing expense control efforts; 3) regulatory or crypto asset market structure changes resulting in lower trading volumes, transaction revenue or significant regulatory penalties; or 4) a shift in financial policy that significantly increases debt leverage without clear visibility about subsequent de-leveraging and with a corresponding deterioration in financial metrics (debt/EBITDA, EBITDA/interest expense).
The following ratings were confirmed:
..Issuer: Coinbase Global, Inc.
…. Corporate Family Rating, Confirmed at Ba3
….Backed Senior Unsecured Notes, Confirmed at Ba2
Outlook Actions:
..Issuer: Coinbase Global, Inc.
….Outlook, Changed To Negative From Rating Under Review
The principal methodology used in these ratings was Securities Industry Service Providers Methodology published in November 2019 and available at https://ratings.moodys.com/api/rmc-documents/66474. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Fadi Abdel Massih
Vice President – Senior Analyst
Financial Institutions Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Donald Robertson
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
