MicroStrategy issues new bonds to repay old debt, then buys 7,420 bitcoins again

The Bitcoin development company MicroStrategy has announced the successful issuance of $1.01 billion in convertible bonds to redeem the previously high-interest rate senior secured notes, and has purchased 7,420 BTC. As of September 19, 2024, MicroStrategy holds a total of 252,220 Bitcoins with an average cost of $39,266 per Bitcoin.

MicroStrategy Issues $1.01 Billion Convertible Notes

MicroStrategy conducted a private placement with qualified institutional buyers on September 19, 2024, completing the issuance of a new batch of convertible senior notes, commonly known as convertible bonds. The terms of the issuance are as follows:

• Maturity Date: March 15, 2028
• Interest Rate: 0.625%
• Interest Payment Dates: Semi-annual interest payments on March 15 and September 15 each year
• Conversion Price: $183.19
• Soft Call Redemption: MicroStrategy can redeem at par value of 100 after December 20, 2027

MicroStrategy raised a total of $1.01 billion through the issuance of these convertible notes. After deducting discounts, commissions to initial purchasers, and issuance expenses, the net proceeds amounted to approximately $997.4 million.

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

Redemption of Senior Secured Notes, Releasing 69,080 Bitcoins Collateral

MicroStrategy plans to use half of the proceeds to repurchase the 6.125% senior secured notes due in 2028, with a total principal amount of $500 million. On September 16, 2024, MicroStrategy issued a redemption notice, stating that the notes will be redeemed on September 26, 2024, at a price equivalent to 103.063% of the principal, including accrued and unpaid amounts. Upon redemption of the senior secured notes, all collateral for the secured notes, including approximately 69,080 Bitcoins, will be released.

According to MicroStrategy's second-quarter financial report, these senior secured notes are the only remaining ones, with the rest being convertible bonds. Redeeming high-interest bonds also means a reduction in MicroStrategy's interest payment burden! The strategic move of exchanging a 6.125% interest rate for a 0.625% interest rate showcases MicroStrategy's financial flexibility!

Additional Purchase of 7,420 Bitcoins

After settling debts, MicroStrategy used the remaining funds to purchase Bitcoins, acquiring 7,420 BTC for $458.2 million, at an average cost of $61,750 per Bitcoin, achieving a year-to-date Bitcoin return of 17.8%.

As of September 19, 2024, MicroStrategy holds a total of 252,220 Bitcoins, with an average cost of $39,266 per Bitcoin.