Software-analytics provider MicroStrategy Inc. issued convertible senior notes for $500 million due 2028. The proceeds, which MicroStrategy valued at $488 million, will be used to buy Bitcoin.
MicroStrategy Completes $500 Million Offering of 6.125% Senior Secured Notes Due 2028 with #Bitcoin Use of Proceeds. @MicroStrategy’s existing approximately 92,079 bitcoins are being held by a newly formed subsidiary, MacroStrategy LLC. $MSTRhttps://t.co/avdKhHDLMH
— Michael Saylor (@michael_saylor) June 14, 2021
The coupon for the instrument was set at 6.125% per year. strong demand from investors allowed the offering to be increased from the initial $400 million and the range narrowed from 6.25-6.50% per year.
The bonds were collateralized by the company’s assets, including Bitcoin and other cryptocurrencies acquired during and after the offering. According to the press release, MicroStrategy owns 97 079 BTC (about $3.745 billion at the rate at the time of writing).
These coins are not included in the collateral. They have been transferred to a recently registered subsidiary — MacroStrategy.
ForkLog analyst Alexander Kondratyuk is convinced that many Wall Street participants view MicroStrategy’s bonds as a vehicle to bet on Bitcoin’s growth within the current regulatory framework.
«The SEC’s attitude toward fund investments even in regulated Bitcoin futures remainsambiguous. The purchase of the Grayscale Bitcoin Trust securities is accompanied by liquidity constraints during the lock-up period and is not available today. There is alsono clarity with regard to the SEC’s Bitcoin ETF approval timelines. The purchase of similarinstruments in Canada or a direct purchase of digital gold onCoinbase-listed Coinbase for various reasons may not satisfy some investor categories», he noted.
The expert noted that the coupon rate of 6.125% looks attractive in an environment of near-zero rates by the Fed and very tight spreads on high-yield bonds. He said that investors can support the yields of investment portfolios and obtain an option to buy shares of the software maker, which have a high correlation with Bitcoin’s price. In the event of default, market participants will receive “bitcoins and other cryptocurrencies purchased during and after the offering”.
«Oversubscription on the securities during this issue could have manifested itself» — Kondratyuk added, noting that Morgan Stanley clients, who acted as one of the bookrunners, may have driven strong demand. Previously, this financial conglomerateacquired 11% of MicroStrategy’s shares.
MicroStrategy’s shares are listed on Nasdaq under the ticker MSTR. In pre-market trading on June 14, their price rose 14% to $587. As of writing the securities were trading around $586.89.
Earlier, MicroStrategy CEO Michael Saylor said that Bitcoin miners create jobs, bring capital, and promote economic prosperity in the jurisdictions where they operate.
#Bitcoin is durable over time because Bitcoin miners bring jobs, capital, & economic prosperity to every jurisdiction where they operate. Bitcoin will have political support from progressive local, state, & federal leaders because it’s in the best interests of their constituents. https://t.co/5FYBN1tDPF
— Michael Saylor (@michael_saylor) June 13, 2021
He noted that the International Brotherhood of Electrical Workers has expressed support for the mining industry, urging authorities to drop a potential moratorium on cryptocurrency mining in New York state.
As a reminder, in December 2020 MicroStrategy, to raise funds for buying digital gold, issued unsecured convertible senior notes worth $650 million.
In February 2021 the company sold to investors similar notes totaling $1.05 billion.
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