High yield’s Bitcoin babies are in trouble
- William Hoffman
Crypto is tanking, and so is debt that is connected to it. Coinbase’s inaugural high yield bond dropped below 60 cents on the dollar this week, while the notes that MicroStrategy issued last June to fund the purchase of Bitcoin fell below 80.
The moves come amid a brutal selloff not just in the flagship cryptocurrency, but in other major coins as well. Both Bitcoin and Ethereum are down by more than 50% from their November highs, while so-called stablecoin TerraUSD has lost more than 75% of its value.
For credit investors, it’s yet another sign that the market is dialing back on some of the exuberance it displayed last year.
Nowhere was that enthusiasm more on display than in MicroStrategy’s issuance of $500m 6.125% SSNs due 2028, which it used to add to its already substantial Bitcoin holdings (the deal is also partly collateralized by Bitcoin and other crypto acquired after the deal was priced).
“We were not a fan of issuing debt to buy Bitcoin,” said a portfolio manager. “This confirms my initial fears about the strategy.”
The Ba3/B- notes fell as low as 71.93 today, for a 12.92% yield to maturity. That’s a significantly wider yield than average for that ratings category, and wider even than the 12.58% average yield for bonds rated triple-C and below.
“People had raised eyebrows when [MicroStrategy] brought the deal,” said another portfolio manager. “It's certainly one of the standout structures in the high yield bond market.”