Shares of Strategy (formerly MicroStrategy) rose on Monday after the Bitcoin holder took steps to reassure investors it could meet its preferred stock obligations, authorizing up to $2 billion in buybacks and opening the door to Bitcoin sales that could fund dividends, interest payments and buybacks.
The company, led by executive chairman Michael Saylor, announced a new Digital Credit Capital Framework that gives management more room to defend its capital structure, which has come under pressure as Bitcoin weakened and Strategy’s favorite securities traded below their stated values.
Following the announcement, MSTR rose 3.9% to $85.52 in early market trading, while distressed STRC rose to $81.
This price action followed a broader sell-off in these stocks last week, as investors wondered whether Strategy could continue to rely on issuing equity and preferred stock to fund its Bitcoin strategy without putting pressure on existing shareholders.
The framework marks one of the clearest signs yet that Strategy is adjusting its playbook after years of raising capital to accumulate Bitcoin.
The company said it remains committed to Bitcoin as its main treasury reserve, but it now has the formal authority to use a portion of that reserve as a source of liquidity when management decides that selling Bitcoin is more attractive than issuing common stock or other securities.
The strategy held 847,363 Bitcoin as of June 28, worth approximately $50.7 billion. The position remains the largest corporate Bitcoin holding on the public markets, but also carries an unrealized loss of more than $13 billion based on the company’s disclosed acquisition costs.
Strategy builds cash reserve
Strategy said its U.S. dollar reserve as of June 28 was approximately $2.55 billion, including expected proceeds from shares sold through the market-offered program that have not yet been settled.
The company said the reserve may only be used to pay dividends on preferred stock and interest on outstanding debt unless the board approves another use. Based on current annual preferred dividend payments and interest expense of approximately $1.76 billion, the reserve provides approximately 17.4 months of coverage.
The board also adopted a policy requiring Strategy to maintain a minimum reserve equal to at least twelve months of expected preferred dividends and interest expense. Any step below this threshold requires board approval.
That reserve is intended to address one of the central concerns surrounding Strategy’s financing model. The Bitcoin holdings generate no income, while the preferred securities issued to fund the company’s Bitcoin accumulation carry recurring dividend obligations.
The company also said it has $1.25 billion in board-authorized Bitcoin monetization capacity that can be used to build or replenish the reserve.
Combined with its current cash reserve, Strategy says it has approximately $3.8 billion of current liquidity coverage for preferred dividends and interest expense, which equates to 25.9 months of coverage before redemptions, taxes, transaction costs, market conditions or changes in dividend rates.
STRC dividend rises to 12%
Strategy also increased the annual dividend rate on its Variable Rate Series A Perpetual Stretch Preferred Stock, known as STRC, from 11.5% to 12%. The increase applies to semi-monthly periods with record dates on or after July 1.
STRC is designed to trade close to its land The $100 level was indicated, but it has fallen well below that level at the midpoint recent market stress.
The security was trading around $81 at the time of writing, putting it at a deep discount despite the company’s goal of getting it back to the $99-$100 range over time.
The company said it will review the STRC dividend rate monthly, using factors such as the security’s trading level, market returns, credit spreads, Bitcoin price and volatility, reserve coverage and broader capital market conditions.
Strategy also warned that it will not automatically increase the STRC dividend simply because the security is trading below the stated amount. Dividends remain subject to board approval and are not guaranteed.
That distinction is important for investors who have treated STRC as a test of confidence in Strategy’s Bitcoin-backed lending model.
The higher payout may help narrow the discount, but it also increases the cost of keeping the preferred stock complex stable if market yields continue to rise or Bitcoin remains weak.
Quinn Thompson, Chief Investment Officer at Lekker Capital, speaks en route viewed the announcement as a necessary response to recent market pressures.
Thompson noted that Strategy’s common stock was down nearly 30% over the past week, indicating increased selling pressure. He characterized the decision to transfer proceeds from recent equity issues directly into a defensive cash reserve as a very positive development for institutional confidence.
However, Thompson expressed skepticism that a 50 basis point dividend increase alone would be enough to return STRC to its $100 par value, although he acknowledged that the company’s overall capital structure has been significantly stabilized by the presence of a definitive multi-billion dollar safety net.
Buying back $2 billion worth of stock adds another tool
Strategy also authorized $1 billion in buybacks of its Digital Credit Securities, including STRC, STRF, STRD and STRK.
The company said STRC is expected to be the initial focus of the program if management determines that buybacks would be positive and strengthen the capital structure.
Redemptions may be made through open market purchases, block transactions, tender offers, exchange offers or privately negotiated transactions.
The authorization does not require Strategy to purchase a specific number of securities and has no fixed expiration date.
The logic is simple. If Strategy purchases preferred securities at a significant discount to the stated amount, it can reduce future dividend obligations while increasing confidence in the remaining securities.
That could help the company reduce the costs of supporting its capital structure, although it would also require cash or Bitcoin sales if it were to be funded outside of regular capital market activities.
Strategy also approved a separate $1 billion repurchase program for its Class A common stock. The company said common share repurchases may be used if management believes MSTR is trading below net asset value.
Neither the preferred stock nor common stock buybacks will be funded from the U.S. dollar reserve, the company said. If Strategy uses Bitcoin sales to fund buybacks, those sales would fall under Bitcoin’s monetization program.
Chief Executive Officer Phong Le said the company is shifting from a model focused on issuing securities to one that also uses buybacks when market prices make them attractive. He added:
“We plan to transition between issuing securities when capital is attractive and repurchasing securities when our instruments are trading at levels that encourage repurchases.”
Bitcoin becomes part of the liquidity plan
The Bitcoin monetization program is the most important part of the long-term strategy investor framework.
Under the program, the company can sell Bitcoin for three purposes: to generate up to $1.25 billion for the U.S. dollar reserve, to fund or replenish cash used for preferred dividends and interest expense, and to finance the repurchase of Digital Credit Securities or MSTR common stock.
The program has no fixed expiration date and does not require a strategy to sell Bitcoin. Any sale would depend on market conditions, liquidity needs, taxes, accounting issues, regulatory requirements and management’s assessment of shareholder value.
Yet the authorization formalizes a shift that had already begun. Strategy sold 32 Bitcoins for approximately $2.5 million between May 26 and May 31, only the second known Bitcoin sale in the company’s history.
That sale was small compared to the company’s total assets, but it did indicate a willingness to use Bitcoin as a balance sheet instrument when management believes it can improve the company’s financial position.
The new framework expands that flexibility.
For years, Saylor’s strategy was based on turning public market demand for MSTR and related securities into a financing engine for Bitcoin purchases.
That model worked best when MSTR was trading at a large premium to the value of its Bitcoin holdings, allowing the company to sell stock or preferred instruments and use the proceeds to buy more Bitcoin in a way that management viewed as positive.
That premium has fallen sharply. Strategy said it expects to remain disciplined in its use of common stock issuances, especially when MSTR is trading at or near 1x mNAV per share, a valuation metric tied to the company’s Bitcoin holdings.
The new framework gives management a different path. Rather than relying primarily on new issuance, Strategy can leverage cash reserves, Bitcoin monetization, and buybacks to manage the liabilities created by its own capital raising.
Despite the new ability to sell BTC, Saylor said:
The strategy remains committed to Bitcoin as its primary treasury reserve. At the same time, digital credit requires liquidity, discipline and active capital management.