Strategy has unveiled a revised capital management plan that allows the company to sell part of its Bitcoin holdings to strengthen liquidity, support shareholder payouts and repurchase securities.
Summary
- Strategy has approved a new capital framework that allows up to $1.25 billion in Bitcoin sales to support dividends, cash reserves and share buybacks.
- The company raised the STRC dividend to 12% and increased its protected cash reserve to $2.55 billion while reporting no new Bitcoin purchases last week.
- The changes came after growing scrutiny of Strategy’s funding model as investors questioned its liquidity, preferred stock structure and capital raising plans.
According to a Form 8-K filed with the U.S. Securities and Exchange Commission on Monday, filed alongside the company’s latest weekly Bitcoin update, the new Digital Credit Capital Framework authorizes Strategy to monetize up to $1.25 billion worth of Bitcoin if needed.
Per the filing, proceeds may be used to increase cash reserves, fund preferred stock dividends, meet debt obligations, and buy back both preferred securities and Class A MSTR shares.
At the same time, Strategy increased the annual dividend rate on its STRC perpetual preferred stock to 12% from 11.5%. The company also disclosed that its dedicated cash reserve has reached $2.55 billion, enough to cover roughly 17 months of preferred dividends and interest payments. Under the new policy, the reserve can only be used for those obligations and must remain above 12 months of coverage unless the board approves otherwise.
Executive chairman Michael Saylor said the existing reserve, combined with the newly authorized Bitcoin monetization capacity, provides about $3.8 billion of dividend coverage, equivalent to nearly 26 months. Saylor also said Strategy intends to remain disciplined when issuing new MSTR shares, particularly when the stock trades near one times its modified net asset value, or mNAV.
Nevertheless, Strategy shares appeared to respond positively to Monday’s announcement. Ahead of the Nasdaq opening bell, investors had pushed MSTR shares up more than 3.2% and another 2.69% in after-hours trading.
MSTR shares. Source: Google Finance.
Focus turns to liquidity instead of new Bitcoin purchases
Although Saylor had hinted at another Bitcoin acquisition over the weekend by posting Strategy’s Bitcoin tracker, the company reported no purchases during the week ended Sunday. Holdings remained unchanged at 847,363 BTC acquired for a combined $64.1 billion at an average purchase price of $75,651 per Bitcoin.
Even without a new weekly purchase, Strategy has added a net 3,625 BTC so far in June after buying 3,657 BTC and selling 32 BTC earlier in the month. The filing also showed the company raised about $1.15 billion in net proceeds through the sale of 12.67 million MSTR shares.
The revised framework follows several days of growing debate around Strategy’s funding model. Earlier this month, CryptoQuant warned that Strategy should pause Bitcoin purchases and strengthen its balance sheet, estimating that the company would need about $2.8 billion in cash to restore around two years of dividend coverage after annualized preferred dividend obligations rose to approximately $1.2 billion.
Other critics had questioned whether Strategy should continue relying on capital markets to fund Bitcoin purchases while its securities weakened. For instance, Ripple CEO Brad Garlinghouse has recently argued that issuing securities to acquire more Bitcoin does not create lasting value, while Bitcoin critic Peter Schiff suggested the company might eventually need to sell part of its Bitcoin holdings to finance share buybacks.
Strategy’s mNAV falling below 1 for the first time this cycle has also drawn attention to the economics of its fundraising model. The company had previously indicated that issuing common shares below roughly 1.22x mNAV could dilute Bitcoin per share for existing shareholders.
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