What is a Strategy: Credit Risk Mitigation Strategy Using Perpetual Preferred Stock

Strategy (MSTR) is a publicly traded company whose main business is Bitcoin asset accumulation. Strategy refers to a new publicly traded company model that creates enterprise value through long-term holdings of digital assets. The latest developments in the company’s credit risk management have become a focal point in corporate finance strategies within the digital asset market.

Strategy Company’s Bitcoin Asset Accumulation Strategy and Evolution of Capital Structure

One reason Strategy has attracted attention is its innovative capital structure. The total nominal value of its perpetual preferred stock has reached $8.36 billion, surpassing the $8.2 billion of outstanding convertible bonds. This conversion has brought significant changes to the company’s credit profile.

To support its Bitcoin accumulation strategy, Strategy shifted its capital structure from traditional maturity-based convertible bonds to perpetual preferred stock. This strategic shift significantly reduces refinancing risk and suppresses overall balance sheet credit volatility.

Conversion to Perpetual Preferred Stock — Strategic Shift from Convertible Bonds

Convertible bonds and perpetual preferred stock serve different roles in a company’s capital structure. Convertible bonds are debt securities that pay interest and are redeemed at a predetermined maturity date, with an option to convert into common stock under certain conditions. Strategy’s convertible bonds mature at the end of 2027, with approximately $1.2 billion scheduled for redemption.

In contrast, perpetual preferred stock has different characteristics. It has no maturity date, no principal repayment obligation, pays fixed dividends, and ranks above common stock. The expansion of the dominant position of perpetual preferred stock suggests a more stable capital structure with reduced credit volatility.

Industry analyst Dylan LeClair commented, “The absence of convertible bonds that rank above preferred stock contributes not only to an absolute improvement in credit spreads but also to a reduction in credit spread volatility.”

Strengthening Financial Resilience — $2.25 Billion Cash Reserves and Dividend Coverage

Strategy’s preferred stack consists of four financial instruments: Stride (STRD) with $1.4 billion, Strike (STRK) with $1.4 billion, Stretch (STRC) with $3.4 billion, and Strife (STRF) with $1.3 billion in nominal value, with total annual dividends reaching approximately $87.6 million.

Furthermore, Strategy holds $2.25 billion in cash reserves, contributing to improved dividend coverage and reduced short-term funding risks. This solid liquidity position serves as an important buffer to maintain stability amid market volatility.

Mechanisms to Mitigate Equity Dilution Risk

On the equity side, market issuance was used to raise funds for Bitcoin purchases, resulting in a significant increase in the number of outstanding common shares. From 76 million shares in 2020, there are now over 310 million Class A shares.

While the rapid increase in share count might seem to lead to dilution, it actually reflects the expansion of the company’s asset base (Bitcoin accumulation). Even if convertible bonds are converted into shares in the future, the large number of outstanding shares helps to relatively mitigate the impact of dilution.

Market Reaction and Correlation with the Overall Digital Asset Market

Strategy’s stock price recently increased by 2.23%, reaching $163.81. The market is positively evaluating this move to reduce credit risk.

Meanwhile, the overall digital asset market shows different movements. Bitcoin (BTC) is currently trading at $88,030 (24-hour volatility: -2.21%), continuing a correction driven by risk-off sentiment. Optimism (OP) is at $0.28 (24-hour volatility: -6.10%), experiencing downward pressure despite the ecosystem’s profit buyback plans.

In the derivatives market, a decline in open interest, suppressed volatility, and a rising trend in protective puts and short positions are observed, indicating a cautious stance among market participants.

Diversified Developments in the Digital Asset Ecosystem

Additionally, NFT-native brands like Pudgy Penguins are evolving from traditional “digital luxury goods” to multi-faceted consumer IP platforms. These projects acquire users through mainstream channels and then onboard them into the Web3 space, achieving retail sales of over $13 million, more than 500,000 game downloads, and airdrops to over 6.5 million wallets.

Strategy exemplifies how traditional companies can integrate Bitcoin assets and credit management within the broader evolution of the digital asset market, aiming for long-term value creation. The company’s capital structure optimization and credit risk mitigation strategies could serve as important benchmarks for institutional investors.