(Bloomberg) — MicroStrategy Inc.’s seemingly limitless moves to raise capital for its Bitcoin purchases have run into their first obstacle.
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The self-styled Bitcoin treasury company sold preferred stock units — rare, debt-like securities dangling an 8% coupon — last week, but it had to cater to price-sensitive buyers by pricing them at a sizable discount. The shares were sold for $80 apiece, 20% below their marketed price, effectively pushing the yield to 10% for buyers — a steep concession to finalize the deal.
“I can’t remember the last time I saw something priced this low,” said James Dinsmore, a portfolio manager focused on convertible securities at Gabelli Funds Inc. “Obviously there was some pushback on the initial pricing.”
Still, the deal’s investor-friendly terms enabled the Tysons Corner, Virgina-based company to raise $563 million — more than double the initial target — as co-founder and Chairman Michael Saylor explores multiple slices of capital structure to support his Bitcoin-buying strategy. The demand shows the market’s interest in this asset class, which the company said it could use to raise as much as $2 billion this quarter, despite it being more expensive than the ultra-low coupon convertible bonds and at-the-money shares it has issued previously.
MicroStrategy didn’t return requests for comment.
“A 10% yield is not cheap capital, but given the company’s profile, I think it’s appropriate,” said David Clott, a portfolio manager at Wellesley Asset Management. “And they’re not diluting existing investors as they had done so with the previous convertible offerings. It’s a good result for them, as they’ve opened up a new market for funding.”
This initiative is part of the company’s broader plan to secure $42 billion over three years via a combination of equity and fixed-income securities, with a shift toward the latter expected this quarter. That’s partly because the company has raised nearly $17 billion through its share sale program and a far smaller amount through convertible debt. The company now owns about $47 billion of Bitcoin — over 2% of all the tokens that will ever exist.
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The so-called perpetual strike preferred stock will pay investors a quarterly dividend and has a cumulative feature, ensuring that any missed payouts must eventually be made. Its conversion price is set at $1,000 — roughly 200% above its latest closing price — a lofty threshold that lowers the odds of conversion to common stock in the near term, effectively delaying dilution that would otherwise affect existing shareholders.
