MicroStrategy to Offer Preferred Stock With a Twist That Could Yield 10% — Barrons.com

Andrew BaryMicroStrategy is planning to price its fourth preferred offering of 2025 late Thursday that is designed to be a Bitcoin-backed version of U.S. Treasury bills.The new $500 million (face value) preferred stock offering from MicroStrategy, which does business as Strategy, is expected to carry an initial yield of 9.5% to 10%. The floating-rate securities will be known as STRC for their planned Nasdaq ticker symbol, or "Stretch."The company, which now holds more than 600,000 Bitcoin worth $72 billion, has sold $3.5 billion of preferred stock this year as a way to diversify its sources of funding beyond equity sales to purchase more Bitcoin. MicroStrategy is the largest corporate Bitcoin holder, and owns 3% of the world's Bitcoin.The new preferred deal is due to total five million shares with a face value of $100 and be sold through an underwriting group led by Morgan Stanley, Barclays, Moelis, and TD Securities. Individuals can also access the deal through Fidelity Investments. MicroStrategy has boosted the size of its other three preferred deals from their original planned sizes and the new STRC deal could be similar.There is a presentation online detailing the complex new deal, and MicroStrategy Executive Chairman and controlling shareholder Michael Saylor narrates an accompanying video.There is a presentation online detailing the complex new deal, and MicroStrategy Executive Chairman Michael Saylor, who controls about 44% of the company's voting power, narrates an accompanying video.Saylor called STRC "the newest member of our preferred stock family," and said the company's aim is to maintain a price around $100. "It's senior. It's perpetual preferred. It's a variable monthly dividend, and we've designed it to maintain a stable price," he said.New investors will get a bonus if the company is successful in that goal. The initial stated dividend rate is expected to be 9% at the face value of $100, but the STRC deal is expected to be priced at $90 to $95 per share, according to Fidelity's site. The discounted price would result in an initial yield of 9.5% to 10%. If the deal prices at $95 and then moves up to $100, investors would have a gain of about 5%.The goal of the preferred stock is to trade close to its stated value of $100 and MicroStrategy will adjust the dividend rate monthly in an effort to achieve that. This makes it a distinctive offering in the preferred market where most issues have fixed rates and the variable-rate securities often reset every five years, rather than monthly.It's an innovative structure for an innovative company that has made preferred stock a key part of its funding program. MicroStrategy also has $8 billion of convertible-debt outstanding.The new STRC preferred will pay a monthly dividend and the company sees it as a Bitcoin-backed alternative to money-market funds and Treasury bills. The goal is to maintain a price close to $100 by adjusting the dividend rate to an appropriate level.Like the company's other preferred deals, it will be perpetual and not carry a credit rating. It likely would carry a junk rating if rated but the company's fans see the preferred as a Bitcoin-backed security since MicroStrategy's Bitcoin holdings exceed the value of its debt and preferred by a factor of about six to one.The three other MicroStrategy preferred issues carry fixed rates, and have proven popular with investors. The STRC deal will be a senior preferred stock along with the company's 10% STRF preferred stock, which finished Wednesday at $116, for a yield of 8.6%.The STRK 8% convertible preferred stock trades at $114 and yields around 7%, while the most recent deal, a junior 10% preferred stock known as STRD, trades at $89 and yields over 11%. MicroStrategy common stock is down 0.8% Thursday to $409, valuing the company at $115 billion.Barron's wrote favorably on STRK and STRF preferred stock in March, arguing their yields — then much higher than now — looked attractive given the effective Bitcoin backing for those investors comfortable with crypto investing. Both those securities were priced at a discount to face value.Saylor said he wants the price of the new STRC deal to be "less volatile" than those of the company's other preferred. The company is betting that it won't take a 9%-plus yield to entice investors to STRC once comfort levels rise, and that the company could save money on dividend costs if the rate resets lower.The bearish argument on the company's preferred is that it has no obvious wherewithal to make annual dividends totaling about $400 million. Its Bitcoin stash yields nothing, and its small software business doesn't generate much free cash. The company may have to rely on equity sales to fund the preferred dividends.Investors have warmed to MicroStrategy preferred stock despite that concern in the past two months, and that could mean a good reception for the new deal.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.