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MicroStrategy issues another $500 million in convertible bonds, with a conversion price as high as $2327 per share; JPMorgan concerned about bubble risk

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MicroStrategy issues another $500 million in convertible bonds, with a conversion price as high as $2327 per share; JPMorgan concerned about bubble risk

MicroStrategy, a software development company whose primary business is Bitcoin, MSTR issued convertible bonds for the second time this month, with a conversion price reaching as high as $2,327. MicroStrategy's continuous issuance of bonds to purchase Bitcoin has raised concerns from JPMorgan, as they believe this leveraged behavior will exacerbate bubble risks.

MicroStrategy Issues Bonds for the Second Time This Month

MicroStrategy announced that it will issue $525 million in principal amount of 2031 convertible senior notes, which will mature in 2031, to qualified institutional buyers in a private offering with the following terms:

  • Maturity Date: March 15, 2031
  • Interest Rate: 0.875%
  • Interest Payment Dates: Semi-annually on March 15 and September 15 each year
  • Conversion Price: $2,327.21
  • Put Option: Bondholders can sell the notes back at par value of 100 after September 15, 2028

What is the principle behind MicroStrategy issuing convertible bonds with low interest rates and a high conversion price?

Although the coupon rate of this convertible bond is slightly higher at 0.875% compared to the previous 0.625%, the conversion price has soared to $2,327, up from $1,498 in the last issuance.

JPMorgan Warns of MicroStrategy Exacerbating Bubble Risk

According to a report by Decrypt, JPMorgan has expressed concerns about MicroStrategy's approach to buying Bitcoin:

MicroStrategy's Bitcoin purchases through debt financing have increased the leverage effect and bubble risk of the current cryptocurrency boom, raising the risk of severe deleveraging in potential future downturns!

MicroStrategy has accumulated 205,000 Bitcoins, valued at around $14 billion at current market prices. This is nearly on par with the $15.9 billion net asset value of BlackRock's Bitcoin spot ETF IBIT. With MicroStrategy's track record, once the bond issuance plan is successfully completed, they are likely to purchase even more Bitcoins in the market. This borrowing-to-buy Bitcoin behavior is what JPMorgan is concerned about in terms of leverage and bubble risks. During the crypto bear market, MicroStrategy's stock price lingered around $140 for a long time, a far cry from yesterday's closing price of $1,782.