MicroStrategy's New Preferred Stock Is Getting Lackluster Demand; It Could Yield 11.75%. — Barrons.com

Andrew BaryMicroStrategy's new preferred stock offering could yield about 11.75% amid what appears to be lackluster investor demand for a deal that is expected to be priced late Thursday.The company — the largest corporate Bitcoin holder — plans to sell 2.5 million shares of the 10% perpetual preferred, known as stride, or STRD, by its planned Nasdaq ticker symbol.The face value of the new preferred is $100 a share, but Fidelity Investments, which is handling orders for the deal, is showing a price of $85 as the pricing range. That would translate into a yield of 11.75% (calculated by dividing the 10% nominal yield by 0.85). Fidelity had been showing an expected price of $100 on Wednesday.At $85, the deal would raise about $212 million before fees at an offering size of 2.5 million shares, but there's a reasonable chance that the deal could be increased in size.The new offering follows MicroStrategy's two other preferred deals this year that now have about $2 billion outstanding. Those two deals are known as STRK (Strike) and STRF (Strife) by their Nasdaq ticker symbols. Preferred is a senior form of equity, but junior to a company's debt.Those two deals had rallied recently amid strength in Bitcoin and growing investor demand. MicroStrategy aimed to take advantage of growing interest by offering new preferred shares that would be junior to the other two.With the new deal likely to price at a sizable discount to face value of $100, the existing issues traded sharply lower Thursday.The 8% STRK preferred is down 5.1% at $102, for a yield of 7.8% while the 10% STRF preferred is off 5.7% to 101 for a 9.9% yield. The 8% STRK issue converts into a tenth of a share of common stock at the holder's option, and carries a lower yield than the STRF deal due to that feature. The STRF stock doesn't have a conversion feature.The new STRD offering should yield more than the other two because it's junior to them in the company's capital structure. Dividends on the new STRD preferred stock won't be mandatory or cumulative — meaning the company doesn't have to make up any missed quarterly dividends. Those investor-unfriendly features could be hurting demand for the new deal.All the MicroStrategy deals carry much higher yields than banks' preferred stock — which now yield about 6%. That's because the company lacks ongoing earnings to pay the annual total preferred dividends of about $200 million. The new preferred deal, like the two others, will not carry a credit rating from either Moody's or S&P Global Ratings, and likely would be junk quality if rated.Rather, investors need to view this new preferred stock effectively as an asset-backed security — one that is backed by the company's big Bitcoin holdings, some 581,000 coins worth $60 billion. MicroStrategy has about $10 billion of debt and preferred, meaning the debt coverage is sizable, at six to one.MicroStrategy common stock is down 2.4% to $369.11 Thursday, depressed by a 1.8% drop in Bitcoin to $102,800. The stock is up 27% in 2025, while Bitcoin has gained 9%.MicroStrategy is using the preferred stock offerings to supplement its offerings of common stock and convertible bonds to buy more Bitcoin.In a presentation for the deal, company chairman Michael Saylor highlighted the asset coverage provided by the Bitcoin holdings for the preferred and termed the new deal a "high yield" offering relative to the other two MicroStrategy preferreds that are senior to them.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.