Explaining MicroStrategy’s Bitcoin Plan – Bitcoin Magazine

MicroStrategy has announced another convertible bond raise, this time priced at $900 million, in order to buy even more bitcoin. How does this compare to its last bond offering? And why isn’t it going to stop anytime soon?

What’s A Convertible Note?

First, a convertible bond or note starts as a bond, then “converts” to equity. The company pays lower interest rates because of this potential conversion. In other words, the company will pay for it later with an equity dilution. A company may choose this route if it has bad credit or it’s expecting high growth.

MicroStrategy’s First Convertible Bond Offering

In December 2020, MicroStrategy announced its first convertible bond offering for the explicit purpose of buying bitcoin. Citi immediately downgraded MSTR to a “sell” recommendation. But, the market had a much more bullish take.

Investor appetite was so strong that MicroStrategy upsized its offering from $400 million to $550 million with the additional option for inverter’s to purchase another $100 million. All of this was filled for a total $650 million offering.

MicroStrategy also priced its bonds insanely low. Interest was 0.75 percent per year. So, payments were about $4 million per year for a company with an operating income of about $40 million. That’s 10x coverage. Meanwhile, 2x is generally considered strong.

CEO Michael Saylor went even further than this aggressive pricing by giving MicroStrategy the option to settle the bond in shares or pay out in cash. The bond was struck for $398 per share while the stock was at $289. This was equivalent to a 35 percent premium to investors.

MicroStrategy’s Latest Offering

This month, MicroStrategy announced a proposed latest offering of $600 million converts with a $90 million optional additional purchase. The announced pricing was even more aggressive than the previous offering. It upsized the offering to $900 million with a $150 million optional…

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