Convertible Bonds

Strategy's stock price fell more than 11% in early trading on Tuesday, as the market expressed concerns over potential forced liquidations of Bitcoin it may face

ChainCatcher news, reported by Decrypt, based on analysis from The Kobeissi Letter, although Strategy's stock price fell over 11% in early trading on Tuesday, raising concerns about potential forced liquidation due to Bitcoin, the likelihood of this scenario occurring is low due to structural safeguards.Strategy primarily raises funds through convertible bonds, such as the $2 billion zero-coupon bond maturing in 2030, with an initial conversion price of $433.43 per share, allowing it to obtain capital without immediately diluting shareholder equity. As of now, Strategy holds approximately 499,096 BTC, valued at about $4.44 billion, while its $8.2 billion debt is highly dependent on Bitcoin's performance.This week's significant correction in the crypto market has led to a $3.7 billion evaporation in the market value of Strategy's Bitcoin holdings. Although there is currently no immediate risk, Polymath co-founder Trevor Koverko pointed out that if the market remains sluggish for an extended period, Strategy's collateral requirements and refinancing capabilities will be tested.Additionally, Strategy co-founder and chairman Michael Saylor holds 46.8% of the voting rights, and analysts believe that shareholder resolutions are nearly impossible to pass without his consent, thereby reducing the likelihood of forced selling due to bankruptcy or shareholder resolutions. The Kobeissi Letter also noted that even if the BTC price drops 50% to $33,000, Strategy's assets would still exceed its debts by over 100%, meaning that unless a "black swan" event occurs, forced liquidation is unlikely before the debt matures (earliest in 2028).

MicroStrategy seeks to establish "smart leverage" or may turn to fixed-income securities to raise funds for purchasing Bitcoin

ChainCatcher news, MicroStrategy co-founder and chairman Michael Saylor stated that once the current fundraising plan is exhausted, the company will shift from a leveraged Bitcoin proxy plan to a more focused approach on fixed-income securities to raise funds for purchasing cryptocurrencies.When asked how he expects to fund future cryptocurrency purchases, Saylor expressed this preference during an interview. So far, MicroStrategy has utilized a combination of new stock and convertible bond sales to fund purchases, the latter of which has provided returns to shareholders as its stock price has risen to levels that can be converted into shares.Saylor said, "We have $7.2 billion in convertible bonds, but $4 billion of that is essentially equity, trading through exercise prices and call prices, with a delta of about 100%, looking like equity. We want to go back and build smarter leverage to benefit our common stock shareholders."He indicated that the company uses regulated exchanges like Coinbase to purchase Bitcoin. MicroStrategy's stock price has risen about 500% this year, far exceeding Bitcoin's approximately 150% increase.Hedge funds have been looking for its fixed-income securities to implement convertible arbitrage strategies, buying bonds and shorting stocks, essentially betting on the volatility of the underlying stock. This demand has driven MicroStrategy to issue $6.2 billion in convertible bonds this year.
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