Andrew Bary

MicroStrategy's new preferred security known as Strife could be priced late Thursday at a sizable discount to its face value of $100 per share.

The $500 million of preferred stock, which will carry a 10% annual dividend rate, could price in the $80-$85 range, according to Bloomberg. Barron's spoke to one preferred investor who said the deal may price at a discount to $100. When the offering was announced Tuesday, the expectation was that it would price at $100 per share.

If the pricing occurs at $85, it would result in a yield of 11.75%, Barron's calculates. MicroStrategy, which does business as Strategy, had no comment on the potential pricing.

MicroStrategy stock has more doubled in the past year, but it is down more than 40% from its November peak.

The offering, which isn't expected to have a credit rating, is due to be priced through an underwriting group led by Morgan Stanley, Barclays Capital, Citigroup and Moelis. Individual investors can access the offering, which is expected to trade on the Nasdaq under the ticker symbol STRF, through Fidelity Investments. The deal likely would have a junk rating if it did carry a rating.

MicroStrategy's existing convertible preferred, traded under the ticker STRK, has traded lower since the company announced the new preferred offer on Tuesday. The STRK preferred, which carries an 8% dividend rate, is down 1% Thursday at $83, for a 9.6% dividend yield.

The STRK deal was originally planned to be sold at $100 but had to be priced at $80 to generate sufficient demand. MicroStrategy sold nearly $600 million of that preferred earlier this year.

The new STRF preferred won't have a conversion feature into common shares. The company plans to pay the STRF dividend in cash.

MicroStrategy plans to issue $500 million of the new preferred to diversify its sources of financing as it continues to add to its bitcoin holdings. It now holds about 500,000 coins worth $42 billion with Bitcoin now trading around $84,000.

The company said the new preferred deal will be perpetual and non-callable, meaning it can't be redeemed unless certain unusual conditions are met.

In a presentation available online, MicroStrategy chairman and controlling shareholder Michael Saylor called Strife "a unique, high performance fixed-income preferred."

He noted that preferred exchange-traded funds like the iShares Preferred and Income Securities $(PFF)$ yield about 6% -- as do many bank preferreds. He noted that Strife would also yield more than junk-bond and leveraged-loan ETFs that now yield about 7%.

Why issue the preferred at such a high rate? Saylor said Bitcoin is apt to appreciate at more than double the annual 10% dividend rate on the preferred.

Saylor said investors should look at asset coverage when evaluating the new preferred. The company's bitcoin covers its debt of roughly $8 billion and what could be over $1 billion of total preferred stock by a ratio of nearly five to one. The preferred is equity and junior to the debt and senior to MicroStrategy common stock.

Saylor, a Bitcoin bull, said in the presentation that the credit perception of the company's preferred could improve if Bitcoin rises and provides more asset coverage to the securities.

But investors appear to be wary of the new deal and are demanding a very high yield to take the risk.

Write to Andrew Bary at andrew.bary@barrons.com

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March 20, 2025 15:47 ET (19:47 GMT)

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