Strategy Expands Bitcoin Holdings with Increased Perpetual Preferred Stock Funding

Deep News
02/18

Strategy Inc., led by Michael Saylor, has acquired nearly $170 million worth of Bitcoin, with approximately half of the funding sourced from the issuance of perpetual preferred stock, marking the highest proportion since November.

The company, formerly known as MicroStrategy, purchased 2,486 Bitcoins between February 9 and February 16, according to a regulatory filing on Tuesday. More than $78 million of the purchase amount was raised through the market-price sale of its "Stretch" preferred shares, accounting for about 46% of the total acquisition. These preferred shares were sold at a discount to their face value. The remaining $90.5 million was raised through the sale of Class A common stock.

Last week, Strategy CEO Phong Le indicated that the company plans to issue additional perpetual preferred shares to address investor concerns about the high volatility of its stock. The Stretch shares offer investors floating dividends, currently set at 11.25%. The dividend rate is reset monthly, and the securities currently yield around 11.30%, comparable to junk bonds.

To date, preferred stock has played a minor role in Strategy's financing. In support of Bitcoin purchases over the past four weeks, the company issued approximately $543 million in common stock and $85 million in perpetual preferred shares. Company executives have expressed a desire to rely more heavily on preferred shares to reduce volatility for investors. The common stock has experienced significant fluctuations, mirroring the price movements of Bitcoin.

Strategy continues to advance its mission of transforming its high-risk Bitcoin bet into an income-generating product. The increased use of preferred shares in the latest acquisition round suggests an effort to raise cash without further unsettling common shareholders, instead shifting some risk to investors willing to tolerate price swings in exchange for stable dividend payments.

Strategy currently has nearly $8.5 billion in outstanding preferred shares, exceeding its approximately $8.2 billion in convertible debt. The company holds over 717,000 Bitcoins, valued at around $49 billion.

On Tuesday, Bitcoin traded near $67,000, down nearly 50% from its October all-time high. This decline has negatively impacted Strategy, which reported a net loss of $12.4 billion in the fourth quarter. The company's common stock has mirrored Bitcoin's downturn, falling nearly 15% year-to-date.

At its peak, Strategy's stock traded significantly above the value of its cryptocurrency holdings, allowing the company to issue new shares, purchase more Bitcoin, and repeat the cycle. However, with this premium largely evaporated and capital markets tightening, this strategy has become difficult to sustain.

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