Wu Shuo Author | Wu Zhuocheng
Editor of this issue | Colin Wu
Wu Shuo Author | Wu Zhuocheng
Editor of this issue | Colin Wu
MicroStrategy's debt "bullets"
On December 9, 2020, MicroStrategy (Nasdaq: MSTR) announced[1] the issuance of convertible senior notes with a total principal amount of US$650 million, including US$550 million in convertible bonds and US$100 million in options. Both are on December 15, 2025. Among them, the convertible bond has a coupon rate of 0.750%, and interest is paid semiannually. The conversion price was approximately $397.99 per share, representing a premium of approximately 37.5% to the closing price of common stock of $289.45 on December 8. The net proceeds from the sale of the notes, after deducting initial purchaser discounts and commissions and issuance expenses, were approximately $635 million. Subsequently, MicroStrategy purchased 29,646 bitcoins[2] for approximately $650 million in cash, at an average price of approximately $21,925. So far, MicroStrategy holds a total of 70,470 bitcoins, with a total cost of approximately US$1.125 billion and an average purchase price of approximately US$15,964.
On February 17, 2021, MicroStrategy once again announced[3] the issuance of convertible senior notes with a total principal amount of US$1.05 billion, including US$900 million in non-interest-bearing convertible bonds and US$150 million in options. The conversion date is December 2027. 15th. The conversion price is approximately $1,432.46 per share, representing a premium of approximately 50% to the closing price of common stock of $955.0 on December 8. The net proceeds from the sale of the notes, after deducting initial purchaser discounts and commissions and issuance expenses, are approximately $1.03 billion. Subsequently, MicroStrategy purchased 19,452 bitcoins[4] for approximately $1.026 billion in cash, at an average price of approximately $52,765. So far, MicroStrategy has held a total of 90,531 bitcoins, with a total cost of approximately US$2.171 billion and an average purchase price of approximately US$23,985.
On June 8, 2021, MicroStrategy announced[5] the issuance of junk bonds with a total principal amount of US$500 million due in 2028, with a coupon rate of 6.125% and interest paid semiannually. Therefore, June 15 and December 15 each year Daily interest payment is USD 15.3125 million. The net proceeds from the sale of the notes, after deducting initial purchaser discounts and commissions and issuance expenses, were approximately $488 million. Subsequently, MicroStrategy purchased 13,005 bitcoins[6] for approximately $489 million in cash, at an average price of approximately $37,617. So far, MicroStrategy has held a total of 105,085 bitcoins at a total cost of approximately $2.741 billion, with an average purchase price of approximately $26,080.
MicroStrategy Stock "Bullets"
On June 14, 2021, MicroStrategy and the agent Jefferies LLC signed an open market sale agreement[7], through which Jefferies will issue common shares with a total price of no more than US$1 billion from time to time. The financial report for the third quarter[8] shows that as of September 30, 2021, MicroStrategy has sold a total of 555,179 common shares through Jefferies at an average price of approximately US$727.64 per share. After deducting sales commissions and expenses of US$4.5 million, this The net proceeds from the stock sale were approximately $399.5 million. In the third quarter, the total cost of buying bitcoin was about US$420 million. So far, MicroStrategy held a total of 114,042 bitcoins, with a total cost of about US$3.16 billion and an average purchase price of about US$27,713.
On December 9, 2021, MicroStrategy announced that it had purchased an additional 8,436 bitcoins in the fourth quarter at a total cost of $496 million at an average price of approximately $58,748. So far, MicroStrategy has held a total of 122,478 bitcoins at a total cost of approximately $3.66 billion, with an average purchase price of approximately $29,861.
As of December 9, approximately $100 million of the 1 billion common shares contained in the sale agreement remained available for sale.
Interest payment ability decides whether to sell
Since the remaining 100 million "bullets" of MicroStrategy are proceeds from the sale of stocks, there is no need to bear interest costs, and the current average cost of total positions is much higher than the market price, so there is no need to use this 100 million US dollars to lower the cost price. In other words, if Bitcoin rises in the market outlook, MicroStrategy will not incur additional losses even if it does not sell the remaining 100 million shares. And if Bitcoin falls in the market outlook, it will be a drop in the bucket to use the $100 million to buy bottoms. Therefore, what we really care about is not how much more Bitcoin MicroStrategy can buy, but when it sells, which depends on its ability to pay interest.
The third-quarter financial report shows that as of September 30, MicroStrategy has paid $17.52 million in interest this year, including $2.0625 million in interest on the first note paid on June 15. From this, it can be estimated that MicroStrategy will have to pay interest of at least US$50.2075 million (1752+206.25+3062.5) per year starting from 2022.
For the past two years, MicroStrategy's EBIT has been around $10 million (excluding bitcoin impairment losses) per quarter, or $40 million per year. It can be seen that if operating income cannot continue to grow, MicroStrategy's EBIT in the next few years will not be able to cover interest. At that time, the company can only repay the debt by continuing financing or selling bitcoin. But the good news is that the company currently has about $57 million in cash, which can ensure that it will not experience financial difficulties until at least June 15 next year.
Considering that the Federal Reserve will likely raise interest rates in June next year, MicroStrategy may not have enough cash to pay subsequent interest expenses at that time. Once the currency price plummets and debts are difficult to repay, the company will face liquidation. At present, since the interest expense has reached the upper limit that the company's operating income can bear, it is unlikely that the company will use debt financing in the next four years. Therefore, in order to obtain cash flow, there are only two ways to continue to apply to the SEC to sell additional stocks or sell bitcoins. The former will not be realized in a short time, and the latter may become the only option.Wu said: Independent and credible reporters are welcome to follow us here
1、https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/MicroStrategy-Announces-Pricing-of-Offering-of-Convertible-Senior-Notes.pdf
2、https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-announces-over-1b-in-total-bitcoin-purchases-in-2020.pdf
3、https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/MicroStrategy-Announces-Pricing-of-Offering-of-Convertible-Senior-Notes_02-17-2021.pdf
4、https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-acquires-additional-19452-bitcoins-for-1-026-billion_02-24-2021.pdf
5、https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-announces-pricing-of-offering-of-senior-secured-notes_06-08-2021.pdf
6、https://www.microstrategy.com/content/dam/website-assets/collateral/financial-documents/press-release-archive/microstrategy-acquires-additional-bitcoins-and-now-holds-over-105000-bitcoins-in-total_06-21-2021.pdf
7、https://www.microstrategy.com/en/investor-relations/press/microstrategy-announces-third-quarter-2021-financial-results
Wu said: Independent and credible reporters are welcome to follow us here
Chinese Twitter https://twitter.com/wublockchain12
Telegram Telegram Chinese Channel https://t.me/wublock
Telegram Telegram Chinese Channel https://t.me/wublock
According to the "Notice on Further Preventing and Dealing with the Risk of Hype in Virtual Currency Transactions" issued by the central bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation and investment behavior. Readers are requested to strictly abide by the laws and regulations of the region and do not participate in Any illegal financial conduct. Wu said that without permission, it is forbidden to reprint or copy the content, and those who violate it will be investigated for legal responsibility.
IOS
Android