Key Takeaways
- • Strategy executive chairman Michael Saylor told the Financial Times that if Bitcoin fell 90% and stayed there for four or five years, the company would remain stable, but equity holders would be wiped out due to heavy leverage from convertible debt and bond offerings.
- • Strategy, formerly MicroStrategy, holds 568,840 BTC worth nearly $59 billion, according to the report, while holding only $60.3 million in cash as of March 31 per its 10-Q, against $43.5 billion in Bitcoin.
- • The company raised $580 million through a preferred stock offering launched in January with a $100 per share liquidation preference, and launched a perpetual preferred offering in March payable solely in cash, both to fund further Bitcoin purchases.
- • Former Bank of America equity capital markets head Craig Coben said the financing moves raise questions about sustainability if Bitcoin declines, while former Citigroup managing director Dave Weiseberger said a Bitcoin drop would almost certainly result in a larger fall in Strategy's stock price.
- • Strategy and Saylor did not respond to Fortune's request for comment.
Summary
Strategy executive chairman Michael Saylor said in a Financial Times interview that the company's capital structure could withstand a 90% decline in Bitcoin lasting four or five years, but that the outcome would be severe for shareholders. "Our capital structure is constructed (so) that Bitcoin could fall 90% and stay there for four or five years, and we would still be stable," Saylor told the FT. He added: "It wouldn't be a good outcome for the equity holders, right. The people at the top of the capital structure, they would suffer because they're levered, but everybody else in the capital structure would get paid out."
The business-software firm, formerly known as MicroStrategy, has become the world's largest corporate Bitcoin holder, owning 568,840 BTC worth nearly $59 billion, funded largely through stock sales and convertible bond issuance. Saylor has said the company's strategy is to acquire more Bitcoin, stating, "Whoever gets the most bitcoin wins. There is no other endgame."
To raise further capital, Strategy launched a preferred stock offering in January that pays a dividend and carries a $100 per share liquidation preference. According to the FT, that vehicle raised $580 million. In March, the company launched a perpetual preferred stock offering that will be payable solely in cash, according to a company release.
Former Bank of America equity capital markets head Craig Coben told the FT that the company's focus has shifted toward "new recruits" and "new money" rather than organic growth from its software business, and said these moves "raise questions about the sustainability of what they are doing," particularly if Bitcoin declines. As of March 31, according to its 10-Q, Strategy held $60.3 million in cash against $43.5 billion in Bitcoin. The filing states that if the company were forced to sell Bitcoin at a significant loss to meet working capital requirements, which Saylor opposes, its business and financial condition could be negatively impacted.
Former Citigroup managing director Dave Weiseberger told Fortune that Strategy's substantial debt load means a Bitcoin price drop would almost certainly result in a larger fall in the company's stock price. Coben added that the company can keep delivering shareholder benefits as long as it continues to trade at a premium to its net asset value. Bitcoin had recently slid but was up nearly 20% that month and more than 65% over the prior year. Strategy and Saylor did not return Fortune's request for comment.
The business-software firm, formerly known as MicroStrategy, has become the world's largest corporate Bitcoin holder, owning 568,840 BTC worth nearly $59 billion, funded largely through stock sales and convertible bond issuance. Saylor has said the company's strategy is to acquire more Bitcoin, stating, "Whoever gets the most bitcoin wins. There is no other endgame."
To raise further capital, Strategy launched a preferred stock offering in January that pays a dividend and carries a $100 per share liquidation preference. According to the FT, that vehicle raised $580 million. In March, the company launched a perpetual preferred stock offering that will be payable solely in cash, according to a company release.
Former Bank of America equity capital markets head Craig Coben told the FT that the company's focus has shifted toward "new recruits" and "new money" rather than organic growth from its software business, and said these moves "raise questions about the sustainability of what they are doing," particularly if Bitcoin declines. As of March 31, according to its 10-Q, Strategy held $60.3 million in cash against $43.5 billion in Bitcoin. The filing states that if the company were forced to sell Bitcoin at a significant loss to meet working capital requirements, which Saylor opposes, its business and financial condition could be negatively impacted.
Former Citigroup managing director Dave Weiseberger told Fortune that Strategy's substantial debt load means a Bitcoin price drop would almost certainly result in a larger fall in the company's stock price. Coben added that the company can keep delivering shareholder benefits as long as it continues to trade at a premium to its net asset value. Bitcoin had recently slid but was up nearly 20% that month and more than 65% over the prior year. Strategy and Saylor did not return Fortune's request for comment.
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