Summary
Issuers use capped call options with convertible debt to prevent dilution to existing shareholders, even when share price rises above conversion price, though they must pay a fee. Peloton raised $1 billion in convertible debt with capped call option in 2021. Coinbase also used capped call options to cover shares of Class A common stock underlying their notes.
Key Points
1. Issuers use capped call options with convertible debt to prevent dilution to existing shareholders, even when their share price rises above the conversion price.
2. Peloton famously raised $1 billion in convertible debts in 2021, including a capped call option, during its breakneck rally.
3. The capped call transactions will cover the number of shares of Coinbase’s Class A common stock that will initially underlie the notes.