MicroStrategy's New Preferred Stock to Carry 10% Yield. What to Know Before Buying. — Barrons.com

By Andrew BaryMicroStrategy plans to issue $500 million of 10% preferred stock dubbed Strife as the largest corporate Bitcoin holder continues to diversify its sources of financing.The company, which does business as Strategy, said the new preferred deal will be perpetual and non-callable, meaning it can't be redeemed unless certain unusual conditions are met.The offering, which isn't expected to have a credit rating, is due to be priced on Thursday through an underwriting group led by Morgan Stanley, Barclays Capital, Citigroup and Moelis. Individual investors can access the offering, which is expected to trade on the Nasdaq under the ticker symbol STRF, through Fidelity Investments.The preferred deal is expected to be priced at $100 per share and pay dividends in cash.MicroStrategy's existing preferred stock, traded under the ticker STRK and known as Strike, is convertible into the company's common shares. The new issue, which will be senior to STRK, will not have an equity conversion feature.The STRK preferred, which carries an 8% dividend rate, now trades around $86 (below its face value of $100) and yields about 9.3%. There is about $700 million of the STRK preferred outstanding.In a presentation available online, MicroStrategy chairman and controlling shareholder Michael Saylor called Strife "a unique, high performance fixed-income preferred."He noted that preferred exchange-traded funds like the iShares Preferred & Income Securities yield about 6% — as do many bank preferreds. He noted that Strife would also yield more than junk-bond and leveraged-loan ETFs that now yield about 7%.MicroStrategy, the largest corporate Bitcoin holder with about $41 billion of the cryptocurrency, or some 500,000 coins, doesn't have earnings in a traditional sense because its smallish software business isn't profitable on the basis of generally accepted accounting principles and its bitcoin holdings yield nothing.Saylor said investors should look at asset coverage when evaluating the new preferred. The company's bitcoin covers its debt of roughly $8 billion and what could be over $1 billion of total preferred stock by a ratio of nearly five to one. The preferred is equity and junior to the debt and senior to MicroStrategy common stock.Saylor, a Bitcoin bull, said in the presentation that the credit perception of the company's preferred could improve if Bitcoin rises and provides more asset coverage to the securities.There isn't expected to be a credit rating on the new preferred stock issue. It likely would carry a junk rating if it were rated because of the lack of traditional earnings coverage. The company had a junk-grade single-B credit rating from Moody's until that rating was withdrawn last year.For investors comfortable with Bitcoin, MicroStrategy preferred offers a very nice yield and considerable asset coverage.It may even be worth buying.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.