Michael Saylor, chairman of Strategy — the corporate bitcoin hoarder formerly known as MicroStrategy — has financed the company’s aggressive cryptocurrency purchases through a method that the Wall Street Journal described as unprecedented for a large company: variable-rate perpetual cumulative preferred stock.
More than $10 billion of the security, ticker STRC and nicknamed “Stretch,” has been issued in less than a year. The coupon has been raised seven times and currently stands at 11.5%, according to the Journal. The preferred stock fell as low as $82.53 last week, pushing its effective yield to 14% — a level the Journal characterized as typical of highly risky junk debt.
Strategy’s market capitalization has fallen by roughly $90 billion since last July. The company’s common stock is down about three-fourths from its peak. Saylor, according to the Journal, said he was “willing to disagree with the lawyers and the bankers and conventional investors” in pursuing the strategy.
The Journal compared Saylor’s risk-taking to that of other famous founders — Walt Disney mortgaging everything for Snow White, Steve Jobs betting on the Macintosh and iPhone, FedEx’s Fred Smith gambling the company’s last funds to cover fuel. But the newspaper noted that those companies were far smaller when they took those bets, and that Saylor is gambling from a position of large scale and declining value rather than from a position of little to lose.
MSI previously reported that Strategy sold bitcoin for the first time since 2022 in June to fund dividend payments on the preferred shares. The one time Strategy sold bitcoin previously, according to the Journal, the cryptocurrency’s price fell sharply.
Strategy’s ongoing dividend obligation on the preferred shares is substantial, and the business produces hardly any of its own cash, the Journal reported. Among the options available to the company: selling more common stock, now sharply lower, to service dividends; raising the Stretch dividend again to push its price back toward par and sell more, a move that would worsen the cash flow problem; or halting the dividend — a legal but “nuclear option,” according to the Journal, because unpaid dividends are cumulative and would mushroom while remaining senior to common stock claims in bankruptcy.
“There’s a reason no large company has tried this financing method before — it works until it doesn’t,” the Journal wrote.