15% discount and 17% yield boost made Strategy STRF sale ‘upsized’

Michael Saylor boasted this morning that his company upsized a fundraising deal from $500 million to $722.5 million. In order to close that deal, however, he boosted the STRF preferred stock dividend and financial terms — and excluded those details from his tweet.

Specifically, Strategy (formerly MicroStrategy) had hoped to sell 5 million shares of STRF preferred stock as close to their $100 liquidation preference as possible. Instead, the company slashed the pricing of those shares by 15% to $85.

Liquidation preference is the right of certain investors to receive their investment back first — ahead of common shareholders — in the event of a liquidity event like a dividend, dissolution, or payout. 

In addition to a 15% discount on liquidation preference, Strategy agreed to keep its dividend rate at 10% on the full $100 per share. Therefore, an even sweeter result of that discount is that investors will receive a de facto 11.76% dividend rate because of their lower purchase price.

As a final sweetener, the liquidation preference for STRF shareholders will start at $100, and not only will it not decrease, it may actually increase. Indeed, if subsequent, higher-priced STRF sales by the company occur, or if the price of STRF trends higher for several weeks on the Nasdaq, then STRF shareholders will receive even more liquidation preference.

An upsized round because of upsized generosity

Unsurprisingly, net proceeds to Strategy from the offering will be approximately $711.2 million — much higher than its original goal of $500 million. However, the increased amount is mathematically related to the deal terms: a higher preference in the company’s capital stack and a larger dividend rate.

Strategy will use most of the funds from this preferred stock sale to buy more bitcoin (BTC).

Read more: Michael Saylor’s bitcoin announcements no longer seem to pump MSTR stock

Reactions to the announcement were mixed. Some called it bullish for the company or the price of BTC. Peter Schiff made fun of it. Others questioned who would be holding the bag if BTC continued its bear market trajectory.

Generally speaking, critics have plenty of verbal ammunition with Strategy itself being in a multi-month bear market and a concerningly red position from its recent bitcoin purchases. Since its all-time high in November, shares of MSTR have declined 44%.

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