(Bloomberg) — MicroStrategy Inc., the software company controlled by entrepreneur Michael Saylor that’s made investing in Bitcoin central to its corporate strategy, is borrowing against its digital-asset holdings for the first time to buy more of the cryptocurrency.
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The Tysons Corner, Virginia-based company’s MacroStrategy unit received a $205 million three-year term loan from a unit of Silvergate Bank, the firms said in a statement Tuesday. The loan is backed by collateral roughly equal to four times its size or $820 million, according to company filings. The MicroStrategy unit held about $2.5 billion in Bitcoin at the end of December, according to corporate filings.
Saylor, the founder and chief executive of MicroStrategy, has been the most vocal corporate advocate of holding the cryptocurrency instead of cash in corporate treasuries. The company started buying Bitcoin for its balance sheet in August 2020, with Saylor citing the Federal Reserve’s relaxing of its inflation policy for helping to convince him to get out of cash.
The transaction is being done through the Silvergate Exchange Network Leverage program, launched in 2020, which provides access to capital through dollar loans collateralized by Bitcoin. As of December, SEN had approximately $570.5 million in commitments.
The loan pays 3.7 percentage points over SOFR, or the secured overnight financing rate. Assuming the full loan is outstanding, MacroStrategy is required to maintain a loan to collateral value ratio of 50% or less or at least $410 million of Bitcoin. That means if the price of Bitcoin drops far enough, MacroStrategy will have to deposit additional coins into the account or prepay a portion of the loan so that the ratio declines to 25% or less, according to company documents.
MicroStrategy has returned to capital markets multiple times since the company’s foray into crypto, selling $500 million in junk bonds and tapping the convertible debt market. The company also last year filed to sell as much as $1 billion in common shares for general purposes, including the purchase of more Bitcoin.
MicroStrategy hasn’t announced any Bitcoin purchase through a corporate filing since Feb. 1.
Shares of MicroStrategy were little changed, while those of Silvergate parent Silvergate Capital Corp. increased 2.4%.
(Updates terms of the agreement in the second paragraph.)
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