Strategy Bitcoin Sale on the Table: MSTR Shares Rise on Buyback and Dividend Signals

Shares of Strategy, formerly known as MicroStrategy, saw a notable increase on Monday as the company took steps to reassure investors. The company authorized a share buyback program of up to 2 billion USD to demonstrate its ability to meet preferred stock obligations. Additionally, it opened the door to selling Bitcoin to finance dividend payments, interest obligations, and share buybacks. Immediately following these developments, MSTR shares gained 3.9 percent in early trading sessions, rising to 85.52 USD. The company's pressured STRC preferred shares also climbed to the 81 USD level on the impact of this news.

The company, led by Michael Saylor as Chairman of the Board, announced a new Digital Credit Facility Framework that provides management with more flexibility to defend its capital structure. This framework aims to alleviate pressures arising from the weakness in Bitcoin prices and the trading of the company's preferred securities below their stated values. A broad sell-off in these shares last week had caused investors to seriously doubt how long Strategy could continue issuing shares and preferred securities to finance its Bitcoin strategy. The company's new move is interpreted as a turning point in its years-long capital raising strategy to accumulate Bitcoin. Wanting to alleviate investor concerns, the company has shown that it has significantly revised its game plan with this new framework, which will reduce the pressure on existing shareholders.

Strategy emphasized that Bitcoin continues to be its primary treasury reserve asset, but it now also has the formal authority to use this reserve as a source of liquidity in certain situations. If the company's management decides that selling Bitcoin is more advantageous than issuing new shares or other securities, it can provide liquidity from these assets. As of 28 June, the company holds approximately 847.363 Bitcoin worth about 50.7 billion USD, and this position holds the distinction of being the largest corporate Bitcoin holding in the public markets. However, according to the purchase cost announced by the company, this massive investment currently comprises an unrealized loss of more than 13 billion USD. The company bringing the option to sell these assets to the table is of great importance in terms of serving as insurance against potential volatility in the cryptocurrency markets.

On the other hand, the company stated that it increased its USD reserves to approximately 2.55 billion USD as of 28 June and that this figure also includes unrealized share sales. This reserve is planned to be used solely to cover preferred stock dividends and interest payments on current debts, but if the board of directors authorizes another use, different scenarios may come into play. Excluding current annual preferred dividend payments and approximately 1.76 billion USD in interest expenses, this reserve provides a financing guarantee for about 17.4 months. The company's board of directors also adopted a policy requiring Strategy to maintain a minimum reserve equal to at least 12 months of expected dividend and interest expenses, and board approval will definitely be sought if it falls below this threshold. Even though Bitcoin assets do not generate regular income, the recurring dividend obligations carried by preferred securities cause the company to require a regular cash flow.

The company also announced that it increased the annual dividend rate for the Variable Rate Series A Perpetual Preferred Stock, known as STRC, from 11.5 percent to 12 percent. This increase will be applied for semi-monthly periods with a record date on and after 1 July. Although STRC is designed to trade at its par value of 100 USD, it continues to trade well below this level due to recent market pressures. Trading at around 81 USD at the time of writing, this security is being sold at a steep discount to its par value despite the company's goal of bringing its value back to the 99-100 USD range over time. The company stated that it will reassess the STRC dividend rate every month considering various factors such as the trading level of this security, market yields, credit spreads, Bitcoin price, volatility, reserve coverage, and general capital market conditions.