MicroStrategy's capital structure optimization: preferred stock value breakthrough, credit risk significantly reduced

MicroStrategy’s new round of capital restructuring has achieved remarkable results. With the notional value of perpetual preferred shares surpassing $836 million, surpassing the $820 million convertible bond size, the company known for its aggressive Bitcoin investment strategy is successfully reducing its credit risk and funding pressure. This shift marks a strategic shift from traditional debt financing to a more flexible equity financing model.

The scale of preferred shares exceeds that of convertible bonds, and the capital structure restructuring is completed

MicroStrategy’s total notional value of preferred shares now stands at $836 million, surpassing the $820 million size of its convertible bonds for the first time. According to the company’s latest disclosed financial dashboard data, this milestone marks a key turning point in the company’s capital structure.

In contrast, convertible bonds have a fixed maturity date, with the earliest tranche due by the end of 2027, involving a face value of about $1.2 billion. This means that MicroStrategy will need to deal with the maturity of these bonds and potential refinancing needs in the coming years. The new preferred stock structure avoids these short-term pressures.

Perpetual Preferred Stock vs. Convertible Bond: Why the former is more advantageous

There are essential differences in the risk characteristics of the two types of financing instruments. Convertible bonds are hybrid debt instruments that pay regular interest or can be converted into common shares under certain conditions. This dual nature means that when stock prices fluctuate, the actual priority of bonds changes, increasing the volatility of the company’s financial statements. In addition, fixed maturity dates pose refinancing risks.

In contrast, perpetual preferred stock has no expiration date and no mandatory payback obligation. They simply pay a fixed dividend that is preferred in priority to common stock but below debt. This structure eliminates refinancing risk and significantly reduces the volatility of credit spreads. Dylan LeClaire, head of Bitcoin strategy at Metaplanet, commented, “Removing the preferential position of convertible bonds over preferred shares should not only improve absolute credit spreads, but also reduce the volatility of credit spreads.” "

MicroStrategy’s multi-tiered preferred stock system and dividend guarantee

MicroStrategy has built a four-tier preferred stock structure with a total notional value of $836 million, including:

• STRD series: $1.4 billion
• STRK series: $1.4 billion
• STRC series: $3.4 billion
• STRF series: $1.3 billion

The total annual dividend for these preferred shares is approximately $876 million. At the same time, the company maintains $2.25 billion in cash reserves, covering more than two years of dividend payment obligations, significantly reducing short-term financing risks and cushioning the impact of Bitcoin price fluctuations.

Balance of Share Expansion and Risk Mitigation

To support its aggressive Bitcoin accumulation plan, MicroStrategy raised funds through the public market offering of additional common shares. Up to now, the number of outstanding shares of Class A shares has expanded to more than 310 million shares, a fourfold increase from 76 million shares in 2020.

This expansion may seem diluted, but it has an unexpected benefit: a larger floating stock base means that even if the convertible bonds are eventually converted entirely into shares, their dilutive impact on existing shareholders is significantly reduced. This structure provides a buffer for companies to execute their Bitcoin accumulation strategies over time.

Market performance and investment outlook

MicroStrategy stock is up 2.23% to $163.81 in recent trading and a further 0.14% increase in pre-market trading. Bitcoin price is currently fluctuating around $84,910, while the company’s Bitcoin holdings continue to support its balance sheet.

The optimization and improvement of the capital structure, coupled with sufficient cash reserves and growing Bitcoin holdings, creates a more stable financing environment for MicroStrategy’s long-term strategic execution. The decline in credit risk reflects the mature progress of corporate financial management.