NEW YORK, Nov. 21, 2022 — Moody’s Investors Service (Moody’s) is considering downgrading Coinbase Global’s (Coinbase) Ba3 Corporate Family Rating (CFR) and Ba2 Guaranteed Senior Unsecured Ratings . Ratings action follows growing market turmoil in the cryptocurrency sector.
“While Coinbase has a strong liquidity profile, the recent sudden collapse of FTX has increased the level of uncertainty in the crypto operating environment, increasing challenges for all companies operating in the sector. “Customer engagement is a key factor for Coinbase’s bottom line, with an increasing likelihood of a sustained decline in trading volumes,” said Moody’s Vice President and Senior Analyst Fadi Abdel-Mathy. “During our review of the downgrade, we will update our assessment of the cryptocurrency operating environment and consider the extent to which Coinbase’s outlook is tied to a wide range of factors that are inherently beyond our control.”
Moody’s employs the following rating measures:
Under review for downgrade:
Issuer: Coinbase Global, Inc.
…. Corporate Family Rating, downgrade pending, currently Ba3
…. Underlying Senior Unsecured Bonds Under Review for Downgrade, Currently Ba2
Outlook action:
Issuer: Coinbase Global, Inc.
….outlook, changed rating from negative to under review
Rating Rationale / Factors That May Lead to Rating Upgrades or Downgrades
According to Moody’s, the rating action reflects an increasingly challenging operating environment within the crypto sector, with potential customer engagement potential leading to a decline in overall trading volume, and the crypto assets this year. The sector is already facing challenges due to the significant drop in prices. A key element of Moody’s review is that Coinbase’s fate is closely tied to the overall cryptocurrency operating environment, including the extent to which further market disruptions and market participant failures could adversely affect sectoral customer sentiment. is to assess the extent to which it is related to
Moody’s believes that the recent bankruptcy of FTX Trading Ltd. and its affiliates (collectively referred to herein as FTX) has rippled through the cryptocurrency ecosystem, causing losses and exposing institutional investors and retail customers to risk. He said more businesses could go bankrupt. FTX. Moody’s said Coinbase operates a different business model than his FTX, with Coinbase’s trading venue and custody platform at its core, and that many of Coinbase’s credit-positive characteristics to date have included failures. We said that we are protected against the failure of the entire crypto platform. Unlike FTX, Coinbase does not operate retail customer lending activities that may be subject to significant asset-liability mismatches, misappropriation of customer assets, associated liquidity risks, or other bank-like concepts and risks. not involved in Moody’s also said that FTX has common ownership with cryptocurrency quantitative trading firm Alameda Research, exposing FTX to a clear conflict of interest risk. Finally, Coinbase does not issue its own digital token that FTX reportedly used to leverage trading positions. Moody’s said Coinbase maintains a strong liquidity position ($5 billion in cash and cash equivalents as of September 30, 2022, USDC (fiat-backed stablecoin) $368 million in crypto assets, $623 million in crypto assets, and excess cash balances in custodial accounts, plus $3.4 billion in long-term debt ($2 billion in 2028 and 2031). US listed companies with relevant corporate governance standards and a broad investor base are far more numerous than FTX. subject to ongoing scrutiny and monitoring.
During the review, Moody’s updates its assessment of Coinbase’s flexibility in managing its cost base in a highly uncertain operating environment, assessing the company’s ability to navigate further changes and challenges in this environment. Moody’s also considers the potential for Coinbase’s financial profile to deteriorate if the deterioration in crypto-asset prices and trading volumes stays at current levels or worsens, and believes that crypto-asset regulation will continue following recent unfavorable market events. Consider possible developments and what these developments might look like. Affects Coinbase’s strategic position in the sector.
The Ba2 rating on Coinbase’s $2 billion senior guaranteed bond is a notch higher than Coinbase’s Ba3 CFR based on the bond’s priority in Coinbase’s capital structure. The bonds outperform the company’s $1.4 billion convertible notes, which do not benefit from any guarantees from the company’s entities. During the review, Moody’s will update its assessment of Coinbase’s capital structure, including the impact of the owner call function on Coinbase’s convertible bonds maturing prior to the maturity of its rated debt.
According to Moody’s, there is currently no upward pressure on Coinbase’s rating as it is under consideration for a downgrade. In the long term, Coinbase’s valuation is based on (1) maintaining a cost structure that can reliably generate profitability in the current or lower crypto price and trading volume environment, and (2) developing new and profitable assets. may be upgraded if they achieve revenue diversification through the development of A source of income that is not tied to trading volume or cryptocurrency prices without adding significant credit risk.
Coinbase’s rating could be downgraded if Moody’s concludes: Either (3) the projected cash flow generation will significantly weaken the scope of the cash debt, or (4) evidence that Coinbase’s cost flexibility is limited. there is.
The main methodology used in these ratings was published in November 2019, https://ratings.moodys.com/api/rmc-documents/66474Alternatively, see our Rating Methodology page. https://ratings.moodys.com For a copy of this methodology.
Regulatory disclosure
For more information on Moody’s key rating assumptions and sensitivity analysis, please refer to the “Methodological Assumptions” and “Sensitivity to Assumptions” sections of the Disclosure Form. Moody’s rating symbols and definitions are: https://ratings.moodys.com/rating-definitions.
For any Rating issued against a Program, Series, Category/Class of Debt or Securities, this Announcement does not imply that each Rating, Category/Class of Debt, Security or Rating issued for any subsequent Issue of Notes or Notes in the same Series is Programs derived solely from existing ratings in accordance with Moody’s Rating Practices. With respect to ratings issued to support providers, this announcement clarifies the specific regulatory requirements associated with each credit rating action on the support provider and each specific credit rating action on securities that derive credit ratings from the support provider’s credit rating. provide disclosure. With respect to provisional ratings, this announcement provides specific regulatory disclosures in connection with the provisional ratings assigned and in connection with any definitive ratings that may be assigned following final issuance of the debt. provide. Before assigning a final rating in any way that affects the rating. See the respective issuer’s issuer/transaction page for more information. https://ratings.moodys.com.
For affected securities or rated entities that receive direct credit support from the principal entity in this Credit Rating Action and whose ratings may change as a result of this Credit Rating Action, the relevant Regulatory disclosures are disclosures of the assurance entity. Exceptions to this approach exist for the following disclosures, as applicable to the jurisdiction: Ancillary Services, Disclosures to Rated Entities, and Disclosures from Rated Entities.
Ratings are disclosed to the rated entity or its designated agent and are issued without modification due to such disclosure.
These ratings are solicited. Please refer to our policy on assigning and assigning unsolicited credit ratings on Moody’s website. https://ratings.moodys.com.
The regulatory disclosures contained in this press release apply to credit ratings and, if applicable, to related rating outlooks or rating reviews.
Moody’s General Principles for Evaluating Environmental, Social and Governance (ESG) Risks in Credit Analysis can be found at: https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Ratings in this Credit Ratings Announcement are issued by one of Moody’s affiliates outside the EU and are guaranteed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany. Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information about the EU approval status and the Moody’s Office that issued the credit rating is available at: https://ratings.moodys.com.
The global credit ratings in this Credit Ratings Announcement are issued by one of Moody’s affiliates outside the United Kingdom and are issued by Moody’s Investors Service Limited, One Canada Square, Canary, pursuant to the laws applicable to UK credit rating agencies. Approved by Wharf, London E14 5FA. Further information on the Moody’s Office issuing UK approval status and credit rating is available at: https://ratings.moodys.com.
Please see https://ratings.moodys.com for the latest information regarding changes to the lead rating analyst and the Moody’s entity issuing the rating.
Please refer to the issuer/transaction page at https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Fadi Abdel Massy
Vice President – Senior Analyst
financial institution group
Moody’s Investors Service Inc.
250 Greenwich Street
New York, NY 10007
united states of america
Journalist: 1 212 553 0376
Client Service: 1 212 553 1653
Donald Robertson
Associate Managing Director
financial institution group
Journalist: 1 212 553 0376
Client Service: 1 212 553 1653
Release office:
Moody’s Investors Service Inc.
250 Greenwich Street
New York, NY 10007
united states of america
Journalist: 1 212 553 0376
Client Service: 1 212 553 1653
