Bitcoin development company MicroStrategy has seen a significant increase in the value of its stock and convertible bonds, with its stock surging 110% and its bonds trading for over three times their par value. The company issued convertible bonds in 2020 to raise $650 million, with a conversion price of $397.99. These bonds act like regular bonds with a fixed interest rate but can also be paid back in new shares if the stock value rises significantly. Given the high interest rates in the current market, these bonds are an attractive option for MSTR to raise capital quickly to buy more Bitcoin.
MicroStrategy faces a decision regarding its convertible bonds: to either retire the bonds and pay back investors $2.5 billion in cash or allow them to mature in 2025 and convert to shares. Michael Youngworth, Bank of America Corp.’s head of global convertibles and preferreds strategy, believes that it is more likely for the bonds to be converted into shares rather than bought back by the issuer. With a limited amount of cash on its balance sheet, a simple cash payout seems unlikely for MicroStrategy. The majority of the company’s wealth is held in Bitcoin, totaling 214,245 BTC worth $14.9 billion, with no plans to sell any of its coins.
MicroStrategy’s plan for dealing with its debt remains uncertain, and the firm’s executive chairman, Michael Saylor, has indicated that the company may hold Bitcoin for over 100 years. In December 2020, MicroStrategy issued convertible bonds with a meager 0.75% interest rate, due for maturity in 2025. The company completed two separate convertible note sales totaling $1.4 billion last month, with all proceeds used to purchase more Bitcoin. This strategy of using convertible bonds to raise capital for Bitcoin investments has proven successful for MicroStrategy in recent months, with the company seeing a significant increase in the value of its stock and bonds.
As the price of Bitcoin continues to rise, MicroStrategy’s decision on how to handle its convertible bonds will be crucial in determining the future of the company. With a large amount of wealth tied up in Bitcoin and limited cash reserves, the company may opt to convert the bonds into shares rather than making a cash payout. This strategy aligns with the company’s long-term approach to holding Bitcoin for the foreseeable future. With the market value of its Bitcoin holdings far exceeding the value of its other assets, MicroStrategy’s focus on cryptocurrency investments has paid off in the short term, but the company will need to carefully manage its debt obligations to ensure long-term financial stability.
