New MicroStrategy Preferred, a Bitcoin Play, Should Yield 10% or More — Barrons.com

Andrew Bary

MicroStrategy plans to sell $250 million of preferred stock on Thursday that is expected to yield 10% or more as the big Bitcoin holder benefits from rising demand for two other preferred issues sold earlier this year.

The company plans to sell 2.5 million shares of junior perpetual preferred stock at $100 a share, or possibly a lower price, in a deal underwritten by a group led by Barclays, Morgan Stanley, Moelis, and TD Securities. Retail investors can access the preferred through Fidelity Investments.

The new preferred, like the two other deals, will trade on the Nasdaq and carry the ticker STRD, pronounced Stride. The offering could be increased in size based on demand.

The STRD deal will be junior to the two other issues, known as STRK (Strike) and STRF (Strife) and traded under those two tickers.

MicroStrategy, known as Strategy, has sold about $2 billion of preferred stock this year as it broadens its funding base beyond common stock and convertible bonds to purchase more Bitcoin. Those two deals initially were priced at sharp discounts to their face value of $100 but have rallied as Bitcoin has gained. Investors have warmed to the way the preferreds are structured, as well as being attracted by their high yields.

Barron's has written favorably on those two deals as a high-yielding play on Bitcoin.

The MicroStrategy STRF preferred has a 10% nominal dividend rate. It finished Wednesday at $107, for a yield of 9.3%. It went public at $85.

The MicroStrategy STRK convertible preferred has an 8% dividend rate. It ended Wednesday at $107.55, up 1%, after hitting a new 52-week high. It went public at $80 in late January. It yields 7.5%, below the stated 8% rate, because the market price is now above $100.

The STRK deal has a lower yield than the STRF deal because it has a conversion feature that is now out of the money. Holders can exchange each share for one tenth of a common share, which ended Wednesday at $378.10, down 2.4%.

The new STRD preferred is junior to both the STRK and STRF deals. Michael Saylor, the company's executive chairman and controlling shareholder, called STRF the "crown jewel" among MicroStrategy preferred securities due to its senior status in a video about the new deal posted on the company's website.

He called the new STRD deal a "high yield" offering due to the 10% rate and junior status. Dividends on the new deal won't be mandatory or cumulative, which means that the company doesn't have to make up any missed quarterly payments.

The MicroStrategy preferred carries much higher yields than bank preferred securities, now yielding 6%, because the company lacks continuing earnings to pay the annual total preferred dividends of about $200 million. The Bitcoin holdings yield nothing.

The preferred effectively is an asset-backed security backed by the company's big Bitcoin holdings — some 581,000 coins worth over $61 billion. The company has about $10 billion of debt and preferred, meaning the asset coverage is sizable at six to one. In a presentation on its website about the new deal, the company stresses that point.

The preferred likely would have a junk rating if it were rated by major credit-rating companies. Saylor likened the senior STRF preferred to an "investment-grade" offering.

The two prior preferred deals needed to be priced initially at big discounts from their face value of $100 to encourage investors to buy them. The new deal may get a better reception, with a smaller discount. If demand is very strong, it could sell at $100.

Write to Andrew Bary at andrew.bary@barrons.com

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