Understanding Financing Strategies: Why Convertible is the Financial Foundation That Has Now Been Surpassed

Leading technology company Strategy is undergoing a significant transformation in its funding structure. The nominal value of Strategy’s perpetual preferred stock reaches $8.36 billion, surpassing the outstanding convertible debt of $8.2 billion. This shift is not just a number—it’s a sign of a fundamental strategic change in managing credit risk, especially in supporting its aggressive bitcoin accumulation ambitions.

But the question is: what makes convertible instruments different, and why is Strategy choosing to switch? Let’s explore the mechanisms of these two types of financing and their implications for investors.

Convertible Is a Multiple Bond: Debt with Hidden Equity Options

To understand Strategy’s decision, we first need to understand what a convertible is. A convertible is a debt instrument that combines two characteristics: first, it pays periodic interest and has a fixed maturity date like a normal bond; second, it embeds an option to convert into common stock under certain conditions.

For a company like Strategy, which is accumulating bitcoin on a large scale, convertibles are tools for raising long-term capital. However, convertibles also carry hidden burdens.

The earliest maturity date for Strategy’s convertible debt is at the end of 2027, linked to approximately $1.2 billion of principal. When the convertible approaches maturity, the company faces two choices: repay the principal (which is heavy on the balance sheet) or convert into equity (which dilutes shareholders).

During this period, refinancing risk looms. If market conditions worsen or stock prices decline, the convertible becomes more like pure debt—its conversion value diminishes, but the repayment obligation remains pressing. This is why credit volatility often increases as maturity approaches.

Perpetual Preferred Equity: Funding Without Time Limits

A stark contrast to convertibles is perpetual preferred equity. This instrument has no maturity date. There is no obligation to repay principal. No deadline creates a refinancing crisis.

Instead, perpetual preferred equity holders receive fixed dividends, placing them in a senior position relative to common shareholders but junior to debt holders. Because it is perpetual, the associated volatility related to maturity is eliminated from the equation.

Strategy’s preferred equity stack consists of four different instruments: STRD ($1.4 billion), STRK ($1.4 billion), STRC ($3.4 billion), and STRF ($1.3 billion), with a combined annual dividend of about $876 million. This combination of instruments offers flexibility, while the perpetual structure provides peace of mind.

Why This Shift Matters for Credit Risk

The increase in the nominal value of preferred equity surpassing convertible debt indicates a more stable financing composition. According to Dylan LeClair, head of Bitcoin strategy at Metaplanet, “The absence of senior convertible bonds over preferred stock should not only increase the absolute credit spread but also reduce credit spread volatility.”

In other words, the market will view Strategy as a lower-risk entity—tighter credit spreads reflect a better risk profile.

Additionally, Strategy maintains cash reserves of $2.25 billion, enhancing dividend coverage and reducing short-term financing pressures. The number of common shares outstanding has also increased significantly: from 76 million in 2020 to over 310 million currently. This larger share base paradoxically eases potential dilution if the remaining convertible debt is eventually converted—since the impact of division over more shares is smaller.

Impact on Bitcoin Accumulation Strategy

All these structural changes are not just accounting maneuvers. They reflect Strategy’s commitment to maintaining financial stability while continuing to accumulate bitcoin. By reducing refinancing risk and credit volatility, the company is creating a more solid foundation for its long-term bitcoin strategy.

Strategy’s stock price rose 2.23% to $163.81, with momentum continuing in pre-market trading. This financing transformation shows that convertibles are a tool of the past for long-term thinking companies—perpetual equity is the present choice.

With this new structure, Strategy not only sharpens its credit risk profile but also sends a clear market signal: this company is built to endure and thrive amid long-term crypto volatility. BTC is currently trading at $88.09K, reflecting market momentum supporting the bitcoin accumulation narrative.