Strategy uses up the bulk of its cash reserves to buy back debt

Strategy used up as much as $1.38B from its cash reserves to buy back debt maturing in 2029. While the move is presented as improving the balance sheet, analysts are worried the company has a much shorter runway for dividend payments. 

Strategy presented its 8-K filing a day late, outlining its debt retirement operations. In total, the debt retirement reached $1.5B, and the latest filing mentioned the use of cash reserves and BTC operations. 

As Cryptopolitan reported earlier, Strategy skipped a week of BTC purchases after a week of no new STRC raises. 

Strategy’s Executive Chairman, Michael Saylor, mentioned the company was seeking more flexibility in improving its balance. 

These transactions demonstrate the optionality we have built into Strategy’s capital structure and our dynamic, multi-variate capital allocation model, said Saylor.

The debt maturing in 2029 was trading below par, meaning the company could achieve savings by retiring the bonds earlier. However, this led to depleted reserves. The company mentioned it plans new raises to refill its cash treasury.

How did Strategy change its balance?

Based on Strategy’s 8-K filing with the US Securities and Exchange Commission (SEC), the company retains a total of 843,738 BTC. So far, independent trackers have not noticed any outflows from the company’s main treasuries. However, not all of the company’s wallets are known and tracked. 

The official filing stated that Strategy completed capital markets and BTC transactions during the week of May 11-25. The main focus of the transactions was a previously planned repurchase of $1.5B in aggregate principal for 0% convertible senior notes due in 2029. 

After the completion of the transactions, Strategy now has $6.7B in aggregate convertible notes, $15.5B in outstanding preferred stock, and a remaining cash reserve of $871M. 

Strategy pays out around $100M in STRC dividends, or an annual obligation of around $1.2B. The recent operations give Strategy a much shorter period of reliably covering STRC payouts. 

Will lower cash reserves kill demand for STRC?

The big question for Strategy is whether it would be able to absorb more of the BTC buying pressure. Strategy’s cash reserves of around $2.25B could give its playbook more time to maneuver and wait for another BTC bull market. 

In the new week, STRC demand was once again zero, with no new ATM sales. STRC traded in its suitable price range of $99-$101 for new issuance, but buyers were waiting on the sidelines. 

MSTR’s common stock price was stagnant at $159.77, while the market was still uncertain about Strategy’s safety margin. 

A deeper BTC correction may mean that Strategy will be faced with the need to sell BTC. The leading coin fell to $75,731.70 as of May 26, just below Strategy’s average purchase price. 

The coming week will show if Strategy uses its MSTR ATM sales again to raise cash and extend its grace period. The company still has to service significant debt, while struggling with MSTR dilution and lowered demand for STRC.

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