Preferred dividends pressure MicroStrategy's Bitcoin flywheel
The guest argued that MicroStrategy's introduction of high-yield preferred shares has created a $1.7 billion annual dividend obligation that may force the company to sell Bitcoin or dilute equity destructively.
The argument
The guest explained that MicroStrategy's cash cushion has dwindled to four or five months after a questionable debt buyback, leaving the company with no good options to service the preferreds without hurting either equity holders, preferred holders, or the price of Bitcoin itself.
The thesis, stress-tested
✓ What validates it
- ✓MSTR sells more Bitcoin to fund preferred dividends
- ✓MSTR issues equity below the 1.26 MNAV accretive threshold
- ✓STRC preferred shares trade significantly below par
▸ Risks discussed
- ▸A massive surge in Bitcoin's price could bail out the capital structure
- ▸The company successfully issues more convertible debt to raise cash
- ▸MSTR stops buying Bitcoin and suspends preferred dividends without destroying the core equity value
Hear it yourself
"Fidelity is an equal opportunity employer. Today's topic is strategy's dilemma and why it's begun selling some Bitcoin. Here to discuss is Jeff Dorman, chief investment officer at Arca. Welcome, Jeff. Hi, Laura. Thanks for having me. And as always, quick compliance. The views I express are my own and are provided for informational purposes only. Nothing I say should be construed as investment advice. You wrote a tweet last week that was somewhat prophetic. You said, quote, the MSTR story has gotten so out of hand. Excuse me. This is the first time that MSTR, BTC, and pref holders are really in a bind."
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