Strategy (MicroStrategy) founder Michael Saylor announced on May 24 that the company will temporarily pause its Bitcoin purchases this week, and instead will repurchase zero-coupon convertible bonds with a face value of $1.5 billion using $1.38 billion in cash (about 92% of par value), originally due in 2029. In the post, he likened MicroStrategy to a “Bitcoin vacuum cleaner (BitVac),” saying the vacuum is currently “charging.”
The financial mechanism of the bond repurchase: $1.38 billion to settle $1.5 billion face value
MicroStrategy will use $1.38 billion in cash to repurchase zero-coupon convertible bonds with a face value of $1.5 billion, a discount of about 8%, saving about $120 million directly. At the same time, the company will issue STRC perpetual preferred stock with a yield as high as 11.5%, replacing the original zero-coupon convertible bonds. An SEC filing confirmed the repurchase agreement, with the settlement expected around May 19. The company’s listed funding sources include existing cash reserves, issuing additional shares via ATM, and selling Bitcoin (listed as one of the potential routes).
Opposition: OnrampBitcoin criticizes a “Ponzi” play
Glenn Cameron, head of global institutional at OnrampBitcoin, criticized the move as being equivalent to a “Ponzi scheme” playbook: by issuing retail investors perpetual high-yield preferred stock, it shifts what would naturally have been short-term zero-coupon debt onto the retail investors’ balance sheets as a perpetual high-yield burden, causing the financing cost to jump from zero-coupon to 11.5%.
Support: Analysts and TD Cowen like the financial structure optimization
Investor FinancialFreedom noted that repurchasing below face value eliminates the risk of future equity dilution, directly saving about $120 million and increasing the number of bitcoins per share. Swan analyst Adam Livingston said eliminating maturity risk helps build a more solid Bitcoin holding structure. CoinDesk analyst James Van Straten pointed out that MicroStrategy sold 704 bitcoins in December 2022, but bought 2,395 bitcoins in the same period; he expects this time to follow the same logic, and the elimination of debt helps align with S&P index rules. TD Cowen’s report said the repurchase can improve credit quality and significantly reduce refinancing pressure. Saylor said that if Bitcoin is sold to pay dividends, for every 1 bitcoin sold, the company will also buy 10 to 20, maintaining a net buyer position.
FAQ
Why did MicroStrategy repay zero-coupon convertible bonds early at a discounted price?
These zero-coupon convertible bondholders can demand redemption at par value by the end of 2027. Because MicroStrategy’s stock price is about $187, far below the conversion price of about $672, rational investors would inevitably require redemption, creating a $3 billion liquidity pressure. Repaying early at 92% of par helps lock in known costs and eliminates maturity risk.
What impact does STRC perpetual preferred stock (11.5%) have replacing the zero-coupon convertible bonds?
Zero-coupon convertible bonds don’t require paying interest; STRC perpetual preferred stock has a yield of 11.5%, sharply increasing financing costs. Cameron criticized this as replacing low-cost, debt with a maturity date with a perpetual high-yield burden; supporters argue that it eliminates maturity risk and optimizes the credit structure.
Is selling Bitcoin the main funding source for this repurchase?
The SEC filing lists funding sources including existing cash reserves, ATM stock issuance, and the sale of Bitcoin (as a potential route), without specifying which is the main source. Saylor said maintaining a net buyer position: if 1 BTC is sold due to dividends, the company will simultaneously buy 10 to 20.
