MicroStrategy Announces $500M Debt Sale to Expand Bitcoin Portfolio

MicroStrategy To Raise $500 Million Through Convertible Notes for Bitcoin Acquisition, Targeting Institutional Investors.

Key Takeaways:

  • MicroStrategy will issue $500 million in convertible senior notes.
  • The funds from the debt sale will be used to acquire more Bitcoin.
  • A private offering will be held for qualified institutional buyers. 

Explaining MicroStrategy Debt Sale Proposal 

On June 13, MicroStrategy announced plans to issue $500 million in convertible senior notes to purchase more Bitcoin. These notes will be unsecured senior obligations of MicroStrategy, with interest paid semi-annually in arrears, starting on December 15, 2024.

Convertible notes are a type of debt instrument that can be converted into company stock at a later date. In the event of liquidation, they take priority over other debt instruments and common stock. If the company faces financial difficulties, note-holders will be paid before other creditors.

The MicroStrategy debt sale includes an option for initial purchasers to buy an additional $75 million in notes. A private offering will be available to qualified institutional buyers under Rule 144A.

Related: Bitcoin Could Jump 20% As Fed Keeps Interest Rates Steady.

The company will primarily use the proceeds from this offering to acquire Bitcoin. Additionally, it may also use the proceeds for general corporate purposes.

This move aligns with the company's existing strategy, as it is already the largest corporate holder of Bitcoin. As of June 13, 2024, MicroStrategy owns 282,148 BTC, valued at approximately $15 billion.

MicroStrategy adopted Bitcoin as its primary reserve asset in 2020. With an average purchase price of around $35,000 per Bitcoin, the firm is significantly profitable on its holdings.

How Does This Impact MicroStrategy Stock?

MicroStrategy's consistent acquisition of Bitcoin has established it a de-facto proxy for Bitcoin on Wall Street. As a result, the company's stock often moves in tandem with the Bitcoin price, thus attracting investors who are bullish on BTC.

Bernstein has initiated coverage of MicroStrategy with a $2,890 price target. The company's shares closed at $1,484 yesterday. This optimistic outlook has earned MicroStrategy an outperform rating from Bernstein. 

Related: Fidelity Exec Backs Bitcoin Allocation for Diversified Portfolios

MicroStrategy debt and equity financing strategy had yielded a higher Bitcoin per equity share over the past four years. According to Bernstein, this metric has grown from 6 Bitcoins per share in Q4 2020 to 10 Bitcoins today.

The report noted:

“We believe MSTR’s long-term convertible debt strategy allows it enough time to gain from Bitcoin's upside, with limited liquidation risk to its Bitcoin on the balance sheet.”

Already, Microstrategy stock recorded 19.67% growth shortly after the announcement. Enthusiasts believe the proposed shares sale will reinforce MicroStrategy's position as a major Bitcoin holder, potentially boosting investor confidence in its long-term growth prospects.

MSTR Stock is up by 19.67%

However, the increased exposure to Bitcoin's volatility might also lead to heightened risk, causing fluctuations in the stock price based on Bitcoin's market performance. 

Nevertheless, the MicroStrategy debt proposal emphasizes the firm's commitment to Bitcoin, which could influence its stock valuation depending on market sentiment towards the cryptocurrency.