MicroStrategy Had To Pay Up To Buy More Bitcoin

MicroStrategy announced the pricing for a Preferred stock offering today and it is very interesting what it has to pay for this round of raising money to buy more bitcoin.

On November 21 last year it raised almost $3 billion with a Convertible Senior Note that paid 0% with a 55% conversion premium. At the time the company’s stock was at $433.80, and the conversion price was $672.40.

For this latest round the company is raising approximately $563.4 million with a Preferred Stock that pays 10% with a 194% conversion premium. The stock was at $340.09 when it was priced, and the conversion price is $1,000. It makes sense that the conversion premium is so much higher since it is having to make interest payments but see below about options the company has in making the payments.

The company was able to increase the January offering from $250 million to $584 million but it had to raise the interest rate from 8% to 10% due to soft demand.

Note that on January 24 the company called its $1.05 billion 0.0% Senior Notes due in 2027 that had a conversion price of $142.38. Assuming all the notes are converted to shares, the company’s share count will increase by 7.36 million.

Interest payments don’t have to be paid in cash

The interest payments can be paid in cash, class A common stock or a combination. From the press release, “Declared regular dividends on the perpetual strike preferred stock will be payable, at MicroStrategy’s election, in cash, shares of its class A common stock or a combination of cash and shares of its class A common stock, in the manner, and subject to the provisions, described in the prospectus supplement for the offering.”

Since the company will be incurring $46.7 million in interest payments per year it would not surprise me that at least some, if not all, of the payments will be in stock as the company had less than $10 million in free cash flow in 2022 and 2023 and it was a negative $38.4 million in the first three quarters of 2024. Or it could keep some of the cash it raises to make at least some of the interest payments in cash.

MicroStrategy’s market cap is still significantly above its bitcoin holdings

This website tracks MicroStrategy’s market cap vs. its bitcoin holdings in real-time. Using the company’s basic share count its market cap is about 1.77 times its bitcoin holdings and using diluted shares it is 2.02 times. To see how this gap has evolved this is a chart from StockCharts.com.