MicroStrategy sells preferred shares at 20% discount, pushing investor yield to 10%

MicroStrategy sold preferred stock units last week, a debt-like security with an 8% coupon. The shares were sold at $80 per share, 20% below the market price, effectively pushing the buyer's yield to 10%, a major concession to complete the deal. James Dinsmore, a portfolio manager at Gabelli Funds Inc. who focuses on convertible securities, said: "I can't remember the last time I saw something so low, and obviously there was some resistance to the initial pricing." Nevertheless, the investor-friendly terms of the deal allowed the company to raise $563 million, more than double its initial target, as co-founder and chairman Michael Saylor is exploring a variety of capital structures to support his Bitcoin buying strategy. This demand shows the market's interest in this asset class, and the company said that although it is more expensive than the ultra-low interest convertible bonds and par stocks previously issued, it can use it to raise up to $2 billion this quarter. MicroStrategy did not respond to a request for comment. "A 10% yield is not cheap capital, but I think it's appropriate given the company's profile," said David Clott, portfolio manager at Wellesley Asset Management. "And they won't dilute existing investors like they did with the previous convertible bond issuance. This is a good result for them because they open up a new financing market." The plan is part of the company's broader plan to raise $42 billion over three years through a combination of stocks and fixed-income securities, and it is expected to turn to the latter this quarter. This is partly because the company raised nearly $17 billion through its stock sale plan, while it raised much less through convertible bonds. The company currently owns about $47 billion in Bitcoin, accounting for more than 2% of its total. (Bloomberg) Earlier, MicroStrategy announced that it would issue 7,300,000 shares of 8.00% Series A perpetual exercise preferred stock ("perpetual exercise preferred stock") on January 30, 2025, with a public offering price of $80.00 per share. The issuance and sale of the perpetually exercisable preferred stock is scheduled to close on February 5, 2025, subject to customary closing conditions. MicroStrategy estimates that the net proceeds from the offering, after deducting underwriting discounts and commissions and MicroStrategy's estimated offering expenses, will be approximately $563.4 million. MicroStrategy intends to use the net proceeds from the offering for general corporate purposes, including the acquisition of Bitcoin, and for working capital.