MicroStrategy said Friday that it’s taking measures to manage $1.05 billion in corporate debt that appears to be tied to the initial stages of its Bitcoin buying scheme.
Under the leadership of co-founder and Executive Chairman Michael Saylor, the company has accumulated a stash of 461,000 Bitcoin worth nearly $49 billion, emerging as the largest corporate holder of Bitcoin since purchasing the asset for the first time in August 2020. And it's still buying, adding $1 billion to the pile earlier this week.
In an effort to buy more Bitcoin than it could otherwise afford, the company has issued so-called convertible notes. It’s a form of company debt that can later be converted into shares, allowing MicroStrategy to attain leverage through borrowed capital poured into Bitcoin.
While the company issued billions of dollars in convertible notes last year, MicroStrategy first announced that it had completed such an offering in February 2021. Raising $1.05 billion then, the batch of convertible notes were set to mature in February 2027 with a 0.0% coupon.
On Friday, MicroStrategy said that it was calling for the redemption of its notes due in 2027, planning to provide holders with 100% of their principal amount on February 24.
However, the note’s holders will be able to convert the debt into shares until February 20, effectively paying $142.38 per share based on the note’s conversation rate, MicroStrategy said. The company’s stock currently trades hands at $373.75 per share, up 730% over the past year.
By calling for the redemption of its notes ahead of schedule, MicroStrategy is effectively reducing its leverage while pushing out repayment risks to September 2028—when $1.01 billion in notes are set to mature—Michael Lebowitz, a portfolio manager at RIA Advisors told Decrypt.
The company currently has $7.26 billion in convertible note debt, having used all the proceeds to build up its Bitcoin stash, according to MSTR Tracker.
“The debt is not necessarily a risk. The risk is that they have to sell Bitcoin to pay off the debt,” Lebowitz said. “Ideally they do want the convertible [notes] converting, so they don't have to really pay it off.”
In its announcement, MicroStrategy said Friday that some note conversions will yield a mix of cash and shares, opting to payout fractional shares with U.S. dollars instead.
MicroStrategy’s move follows a vote among shareholders earlier this week, which increased the firm's number of authorized Class A common shares by 30 times. That move was also conducive with deleveraging the company’s balance sheet, Lebowitz said—but that might not last long.
“Because the company is so popular right now, you can issue that convertible debt so cheaply,” he said. “In theory, they're going to issue more convertible debt, which would then boost the leverage back up.”
Edited by Andrew Hayward