MicroStrategy wants to raise $500 million to buy more Bitcoin
MicroStrategy announced today that it intends to raise 500 million US dollars by issuing new convertible bonds to buy Bitcoin. At the same time, the Bitcoin-based company announced that it will redeem USD 650 million of convertible bonds due next year ahead of schedule.
A convertible senior note is a financial instrument that guarantees the lender a predefined number of company shares on the expiry date. While the loan is outstanding, the creditor receives interest. Depending on the structure of the security, the creditor can decide at the end of the loan term whether he prefers to be paid out in shares or in the original loan amount.
MicroStrategy repays convertible bonds worth $650 million
The first press release on this day stated that MicroStrategy will redeem USD 650 million of convertible bonds in full ahead of schedule. Lenders have until July 11 to convert their notes into shares, otherwise they will be repaid the amount borrowed, including interest, on July 15.
Since the holders of the convertible bonds are entitled to 2.5126 MicroStrategy shares for every 1,000 US dollars borrowed, they will probably all choose the first option. One share is currently worth around 1,600 US dollars. When the convertible bonds were issued, the 2.5126 shares, which are now worth over 4,000 US dollars, corresponded to only 1,000 US dollars.
Accordingly, the buyers of the convertible bonds made a phenomenal return - especially considering that the downside potential was limited. If the share had been worth less than the almost 400 US dollars today, the bondholders would have been able to have the original loan amount paid out, on which they earned the 0.75 percent interest.
MicroStrategy issues new convertible bonds for $500 million
This was shortly followed by a press release that MicroStrategy intends to issue new convertible bonds in the amount of USD 500 million, which will mature in 2032. MicroStrategy reserves the right to redeem the convertible notes early, starting in the second half of 2029.
Since MicroStrategy will probably not need to raise money to redeem the other convertible bonds, it is likely that the company will buy more Bitcoin for the USD 500 million. This is also suggested by the company's standard wording in the press release.
MicroStrategy intends to use the net proceeds from the sale of the notes to purchase additional Bitcoin and for general corporate purposes.
From the press release
MicroStrategy is leaving the pricing of the convertible notes to the market, but the purchase of the securities will only be available to a private group of investors who are "reasonably believed to be qualified institutional buyers."
Bitcoin accumulation continues
With its financing instruments, MicroStrategy seems to be able to collect more and more Bitcoin on credit without having to significantly reduce its Bitcoin holdings to repay the loans. The first listed company to buy Bitcoin now holds a total of 214,400 BTC worth the equivalent of 14.5 billion US dollars.
The company founded by Michael Saylor shows how a public limited company can develop into a success story with the help of a leveraged Bitcoin strategy. This strategy is already being copied by smaller companies, whose shares rose significantly in value in response to the announcement - Blocktrainer.de reported.
It will be interesting to see how many more Bitcoin MicroStrategy will absorb in the future and whether the risky strategy will continue to work out so well. It remains to be seen whether other companies will follow MicroStrategy's example in the long term.
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