Strategy launches $2 billion in buybacks and Bitcoin selling program to shore up preferred stock
Strategy has announced a pivot in how it will manage capital moving forward, with sales of Bitcoin, stock buybacks up to $2 billion in its own securities, and raising dividends on its troubled STRC preferred shares to 12%, all on the table according to its 8-K filing with the SEC on Sunday.
The pivot comes amid a $14 billion setback on its 847,363 BTC holdings, which the firm also revealed in its filing, with Bitcoin trading around $60,500 at the time of the announcement.
Now, the Michael Saylor-led firm has answered with a five-part plan in its “Digital Credit Capital Framework.”
What is Strategy’s Digital Credit Capital Framework?
Strategy’s Digital Credit Capital Framework, as it is presented, is being seen by observers as the firm’s first systematic attempt to manage the financial strain that critics like Peter Schiff, analysts at CryptoQuant, and even Ripple CEO Brad Garlinghouse have flagged in recent weeks.
Specific details shared in the SEC filing include:
A formal USD reserve policy.
A revised STRC dividend rate.
Two separate repurchase programs.
A Bitcoin monetization program.
Strategy has to maintain its cash reserve
On the reserve policy side, Strategy’s board approved a policy that will prevent the company from using its $2.55 billion cash reserve for anything other than preferred stock dividends and interest payments on debt.
Under the plan, Strategy’s management is expected to be in a position where it can cover at least 12 months of its obligations, without any stated exceptions.
Right now, the firm is safely in the green. The $2.55 billion cash reserve it has on hand means it does not need to worry about any cash strain for at least the next 17.4 months based on its current spending rate of approximately $1.76 billion per year.
Does Strategy now have a stock buyback program?
The board greenlit a $2 billion plan to buy back its own preferred and common stocks at an even split of $1 billion across each category.
In simpler terms, it means Strategy has authorization to repurchase up to $1 billion of STRC, STRF, STRD, and STRK and a separate $1 billion program for its Class A common stock, MSTR.
While the program now exists, Strategy does not have any binding obligation to actually buy anything. In fact, it has the wiggle room to suspend or cancel either of the preferred or common stock programs without notice.
BTC monetization is the most interesting update
Of all the updates it shared, all eyes are actually on how Strategy plans to move forward with its BTC monetization program.
The program gives Strategy the discretion to sell Bitcoin when it sees a window. Any funds generated from those sales, if they happen, will go to rebuilding the cash reserve, funding dividends, or financing the repurchase programs.
The $1.25 billion in sales that the company’s board greenlit in this category will be accretive to the existing $2.55 billion reserve. If those sales ever happen, it would bring total liquidity coverage to roughly $3.8 billion, or about 26 months of obligations before accounting for repurchases, taxes, or transaction costs, according to Strategy’s press release.
Cryptopolitan had reported earlier that the firm sold 32 BTC for $2.5 million to help fund dividend repayments.
STRC rates get another rate hike
As from July 1, the annual dividend on the struggling STRC preferred stock has gone up to 12%, the filing shows. Before this latest hike, the instrument had gone through seven rate increase rounds, from 9% to 11.5%. Cryptopolitan previously reported that STRC closed Friday near $74.57, a discount of roughly 25%.
Michael Saylor, ever the bull, framed the overhaul around credit quality. “Digital Credit requires liquidity, discipline, and active capital management,” Saylor said in the press release. He continued that the framework is “designed to strengthen credit quality and enable the Company to reduce expected preferred stock dividend payments when accretive.”
CEO Phong Le read from the script, saying that Strategy is moving from a capital issuance model to active capital structure management through both issuance and repurchases.
MSTR shares were up 6% in pre-market trading following the announcement, and STRC gained about 9%. Bitcoin itself moved modestly higher to around $60,500.
Will Strategy start selling Bitcoin now?
While the framework puts the paperwork in for Strategy to sell Bitcoin if it wants, whether the firm actually offloads any of its stash is completely at management’s discretion.
Potential situations that could force Strategy’s hands could be a $1 billion debt that matures in 2027. Cryptopolitan previously reported that CryptoQuant has estimated that the firm needs about $2.8 billion in cash over the next two years to steady the ship as it concerns dividend coverage.
In the meantime, investors will be watching quarterly disclosures on BTC sales, reserve balances, and repurchase activity in upcoming filings to see which direction Strategy ship is steering.
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