MicroStrategy Sells $2.5 Billion of Preferred Stock. More Bitcoin Buys Likely. — Barrons.com
Andrew BaryMicroStrategy has priced nearly $2.5 billion of variable-rate preferred stock with an initial dividend yield of 10% and the proceeds likely will be earmarked for additional purchases of Bitcoin.The company, the largest corporate holder of the cryptocurrency, boosted the size of the deal known as STRC for its coming Nasdaq ticker symbol, from about $500 million originally planned.The offering is the fourth and largest MicroStrategy preferred-stock deal this year and comes with a new twist. The company plans to adjust the rate with the goal of having the preferred stock trade close to par, or $100 per share.MicroStrategy offered investors an inducement to buy the deal by pricing it at $90 a share. With a stated 9% dividend rate at the face value of $100, the initial yield is 10% (9% divided by 0.90). The dividend can change monthly, and dividends will be paid monthly, unlike most preferred stock that pay dividends quarterly. If the preferred stock rises to $100 each, investors could realize a price gain of more than 10%.MicroStrategy, which does business as Strategy, is issuing 28 million of the new preferred shares, raising $2.474 billion after fees and expenses. The securities are called Variable-Rate Perpetual Stretch preferred stock. The face value of the preferred stock is $2.8 billion.The deal is due to settle on July 29 and the company could buy more Bitcoin then. The company continues to accumulate Bitcoin using proceeds from sales of equity and preferred stock, and now owns about 608,000 coins, or about 3% of the Bitcoin outstanding — a stash now worth about $71 billion.MicroStrategy had sold three other preferred-stock deals this year totaling about $3.5 billion. Those three deals are known by their ticker symbols STRF, STRK, and STRD.Those fixed-rate issues now yield from 7% to more than 11%.In a presentation, MicroStrategy Executive Chairman Michael Saylor likened the new preferred stock to a Bitcoin-backed Treasury Bill. The target investors are those looking for a relatively stable instrument."STRC has got a very particular goal that we're pursuing. And, what kind of investor would we like to find? Who are we targeting? Well, we're targeting short duration, lower volatility investors," he said. It cited the trillions of dollars now sitting in money-market funds and T-bills and said STRC would be appropriate for those comfortable with a Bitcoin-backed security.The STRC issue will be a senior preferred stock — ranking above the STRD and STRK deals.The company's goal is to ultimately pay a lower rate than the initial 10% given what it hopes will be a low-volatility instrument. The company suggested the security could settle at 8% dividend yield or lower.The company now will have about $6 billion of preferred stock outstanding in addition to around $8 billion of convertible debt. The new preferred stock isn't rated and likely would carry junk-grade ratings.Saylor said the security for the preferred stock is the company's huge Bitcoin holdings that are now worth about five times the total value of the debt and preferred stock. Total annual preferred dividends could run at $500 million a year, and that money could come from equity sales since the company's Bitcoin holdings yield nothing and a software business generates little free cash.Investors are getting a premium yield relative to the 6% rates on bank preferred stock. So far, MicroStrategy preferred stock have been well received in part due to the strength in Bitcoin, now priced at around $116,000 The STRK and STRF deal now trade at sizable premiums to par, or $100.The new deal could allow MicroStrategy to step up its Bitcoin purchases. In the most recent week — July 14 through 20 — it bought about $740 million of Bitcoin.Write to Andrew Bary at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.