Is the $1.4 billion "lifeline" for Strategy enough?

Author: JED GRAHAM

Original title: Strategy Raises $1.4 Billion For 'Bitcoin Winter.' Is It Enough?

Compiled and organized by: BitpushNews

MicroStrategy (MSTR) is preparing for a possible “Bitcoin winter” and announced last week that it raised $1.4 billion through the issuance of 8.2 million shares, which will be sufficient to cover all of its interest expenses for the next 21 months.

Despite the bad news surrounding Bitcoin prices currently prevailing, leading to a decline in cryptocurrencies, the relatively good news is that Strategy indicates there will be no need to sell any Bitcoin for at least the next 21 months. This commitment remains valid even if capital markets lose interest in MSTR stock, debt, and preferred shares.

Currently, MicroStrategy's interest and preferred stock dividend expenses are approximately $800 million per year. However, this reserve fund may not be able to avoid a large cash crisis starting in September 2027.

At that time, if the stock price continues to be sluggish, the company will have to redeem $1 billion of convertible bonds. In addition, the company has another $5.6 billion of convertible bonds that are currently out of the money and may need to be redeemed in cash by 2028.

expensive insurance policy

MicroStrategy could have redeemed some preferred shares using $1.44 billion, saving more than $150 million in interest expenses each year. However, the company announced on Monday that the interest rate on its STRC preferred shares would increase from an initial 9% to 10.75%.

In contrast, keeping cash reserves and investing in risk-free government bonds, MicroStrategy may earn an interest yield of 4% to 5%. Choosing not to repay debt means the company and its common shareholders need to pay about $90 million annually in “insurance premiums” in exchange for a backup plan when capital markets are frozen.

Strategic Choices and Valuation Considerations

MicroStrategy is more inclined to sell stocks when the company's enterprise value (including market capitalization, debt, and preferred stock) is higher than the value of its Bitcoin holdings. The situation remains the same - in corporate terms, its market net asset value (mNAV) is still above 1.

“When we consider the Bitcoin winter and see mNAV being compressed, I hope our mNAV does not fall below 1,” said MicroStrategy CEO Phong Le on last week's “What Bitcoin Did” podcast. “But if it really falls below, and we have no other funding channels, we will have to sell Bitcoin.”

However, the company has decided not to let the MSTR stock price determine its fate in the short term. When the dividend payment is due, MicroStrategy may choose to tap into its reserve fund.

The issues that the reserve fund cannot resolve.

MicroStrategy's dollar reserve fund can provide protection without the need to sell Bitcoin in the short term, but this relief may not last long unless Bitcoin prices and MSTR stock prices can recover some ground.

Because if the company really needs to use the fund, its scale will shrink. At that time, if the company's valuation falls below the value of its Bitcoin holdings, it will become even more difficult to issue further shares.

The Real Crisis Moment: 2027 Convertible Bonds Maturity

The real crisis may arrive as early as September 2027, when the company's convertible bonds will mature.

S&P Global assigned a B- credit rating (stable outlook) to MicroStrategy on October 27, specifically highlighting the “liquidity risk” associated with its convertible bonds.

“We believe there is a risk that when Bitcoin faces severe pressure, convertible bonds may also mature at the same time, which could force the company to liquidate Bitcoin at depressed prices or restructure its convertible bonds or preferred stock - we may view this as a default,” wrote S&P Global.

At that time, S&P pointed out that there were $5 billion of convertible bonds in “out of the money” status (i.e., below the conversion price). Since then, another $1.8 billion of convertible bonds have fallen below the conversion price, including a $1.01 billion bond with a conversion price of $183.19. Bondholders may request the company to repay the principal on September 15, 2027 - if equity does not provide sufficient incentive for continued low-cost financing, they are likely to do so.

Convertible Bond Details Table

The following are the key data for MicroStrategy's convertible bonds:

| Issue Date | Principal | Interest Rate | Conversion Price | Holder Redemption Right Date |

| September 2024 | $1.01 billion | 0.625% | 183.19 | September 15, 2027 |

| November 2024 | 3 billion USD | 0.0% | 672.4 | June 1, 2028 |

| March 2024 | 800 million USD | 0.625% | 149.77 | September 15, 2028 |

| February 2025 | 2 billion USD | 0% | 433.43 | March 1, 2028 |

| March 2024 | 605.375 million USD | 0.875% | 232.72 | September 15, 2028 |

| June 2024 | 800 million USD | 2.25% | 204.33 | June 15, 2029 |

(Data source: MicroStrategy 10-Q report)

Summary

MSTR's stock price closed down 6% on December 1, marking a cumulative decline of 64% from its 52-week high in mid-July. It once fell to $156 during the session, before narrowing the loss to above $167.

The price of Bitcoin fell by 7.1% to $84,996, failing to achieve a significant rebound from the slightly lower low of $84,000.

Therefore, the story of Strategy is evolving into a race against time. The company has exchanged $1.4 billion for a 21-month buffer period, but the real test lies in the massive convertible bonds that must be redeemed in 2027. As the market expresses its concerns through a plummeting stock price, this largest publicly traded Bitcoin company faces not only short-term liquidity issues but also the challenge of how to maintain this heavy belief and debt before the next bull market cycle arrives.

After all, in the crypto world, time is never linear — and what Strategy needs is just enough time.