MicroStrategy Announces Proposed Private Offering of $700 Million of Convertible Senior Notes

Rhea-AI Summary

MicroStrategy (Nasdaq: MSTR) has announced a proposed private offering of $700 million in convertible senior notes due 2028, with an option for an additional $105 million. The notes will be unsecured, senior obligations with semi-annual interest payments. They will be convertible into cash, MSTR class A common stock, or a combination thereof. The company plans to use the proceeds to redeem $500 million of its 6.125% Senior Secured Notes due 2028, acquire additional bitcoin, and for general corporate purposes. Upon redemption, collateral securing the Senior Secured Notes, including approximately 69,080 bitcoins, will be released. The offering is subject to market conditions and will be made to qualified institutional buyers under Rule 144A.

Positive

• Potential to raise up to $805 million in capital through the convertible note offering
• Plan to acquire additional bitcoin, potentially increasing cryptocurrency holdings
• Redemption of $500 million Senior Secured Notes, potentially improving debt structure
• Release of collateral, including 69,080 bitcoins, upon redemption of Senior Secured Notes

Negative

• Increase in total debt if the full offering amount is raised
• Potential dilution for existing shareholders if notes are converted to common stock
• Continued exposure to volatile bitcoin market through planned additional purchases

Insights

Financial Analyst

MicroStrategy's proposed $700 million convertible senior notes offering is a significant financial move with several implications. The company aims to refinance its existing $500 million 6.125% Senior Secured Notes, potentially reducing interest costs and freeing up collateral, including 69,080 bitcoins. This could improve MicroStrategy's financial flexibility and Bitcoin holdings strategy.

The new notes, maturing in 2028, offer conversion options and early redemption features, providing MicroStrategy with financial maneuverability. The additional $200 million raised, if the offering is fully subscribed, could be used to acquire more Bitcoin, aligning with the company's ongoing cryptocurrency strategy. However, investors should note the increased debt load and potential dilution risk if the notes are converted to equity.

Cryptocurrency Expert

MicroStrategy's move to refinance its debt while potentially increasing its Bitcoin holdings is a bold continuation of its crypto-centric strategy. By freeing up the 69,080 bitcoins currently used as collateral, the company gains more flexibility in managing its cryptocurrency assets. The intention to use excess funds to acquire additional Bitcoin underscores MicroStrategy's commitment to its Bitcoin strategy, despite market volatility.

This offering could significantly impact MicroStrategy's Bitcoin position, potentially making it an even larger corporate holder of the cryptocurrency. However, this strategy also exposes the company to increased cryptocurrency market risks. Investors should closely monitor how this move affects MicroStrategy's overall risk profile and its correlation with Bitcoin price movements.

Corporate Finance Expert

MicroStrategy's debt restructuring through this convertible notes offering is a strategic financial maneuver. By replacing the secured notes with unsecured convertible notes, the company is likely aiming to reduce its cost of capital and increase financial flexibility. The potential 3.063% premium on redeeming the existing notes suggests a confidence in securing more favorable terms with the new offering.

The convertible feature of the new notes provides a potential upside for investors if MicroStrategy's stock price appreciates, which could make the offering more attractive and potentially lower the interest rate. However, this also introduces potential dilution risk for existing shareholders. The company's ability to redeem the notes early and the holders' right to require repurchase in 2027 add layers of complexity to this financial instrument that investors should carefully consider.

TYSONS CORNER, Va.--(BUSINESS WIRE)-- MicroStrategy® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced that it intends to offer, subject to market conditions and other factors, $700 million aggregate principal amount of convertible senior notes due 2028 (the “notes”) in a private offering to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). MicroStrategy also expects to grant to the initial purchasers of the notes an option to purchase, within a 13-day period beginning on, and including, the date on which the notes are first issued, up to an additional $105 million aggregate principal amount of the notes. The offering is subject to market and other conditions, and there can be no assurance as to whether, when or on what terms the offering may be completed.

The notes will be unsecured, senior obligations of MicroStrategy and will bear interest payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2025. The notes will mature on September 15, 2028, unless earlier repurchased, redeemed or converted in accordance with their terms. Subject to certain conditions, on or after December 20, 2027, MicroStrategy may redeem for cash all or any portion of the notes. If MicroStrategy redeems fewer than all the outstanding notes, at least $75 million aggregate principal amount of notes must be outstanding and not subject to redemption as of the relevant redemption notice date. Holders of the notes will have the right to require MicroStrategy to repurchase for cash all or any portion of their notes on September 15, 2027. The notes will be convertible into cash, shares of MicroStrategy’s class A common stock, or a combination of cash and shares of MicroStrategy’s class A common stock, at MicroStrategy’s election. Prior to March 15, 2028, the notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, at any time until the second scheduled trading day immediately preceding the maturity date. The interest rate, initial conversion rate, and other terms of the notes will be determined at the time of pricing of the offering. MicroStrategy expects that the reference price used to calculate the initial conversion price for the notes will be the U.S. composite volume weighted average price of MicroStrategy’s class A common stock from 1:00 p.m. through 4:00 p.m. Eastern Daylight Time on the date of pricing.

MicroStrategy intends to use the net proceeds from this offering to redeem all $500.0 million outstanding aggregate principal amount of MicroStrategy’s 6.125% Senior Secured Notes due 2028 (the “Senior Secured Notes”) and to use any balance of the net proceeds to acquire additional bitcoin and for general corporate purposes. On September 16, 2024, MicroStrategy issued a redemption notice pursuant to which the Senior Secured Notes will be redeemed on September 26, 2024 (the “Redemption Date”) at a redemption price equal to 103.063% of the principal amount, plus accrued and unpaid interest, if any, to but excluding the Redemption Date (approximately $523.8 million in the aggregate), with the redemption of the Senior Secured Notes contingent on the closing and settlement of the sale of the notes. Upon redemption of the Senior Secured Notes, all collateral securing the Senior Secured Notes, including approximately 69,080 bitcoins, will be released.

The notes will be offered and sold to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The offer and sale of the notes and the shares of MicroStrategy’s class A common stock issuable upon conversion of the notes, if any, have not been and will not be registered under the Securities Act or the securities laws of any other jurisdiction, and the notes and any such shares may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements. Any offer of the notes will be made only by means of a private offering memorandum.

This press release shall not constitute an offer to sell, or a solicitation of an offer to buy the notes, nor shall there be any sale of, the notes in any state or jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of any such state or jurisdiction. This press release is not a notice of redemption with respect to the Senior Secured Notes, and any redemption has been or will be made in accordance with the terms of the indenture governing the Senior Secured Notes. There can be no assurances that the offering of the notes, or the redemption of the Senior Secured Notes, will be completed as described herein or at all.

About MicroStrategy Incorporated

MicroStrategy (Nasdaq: MSTR) considers itself the world’s first Bitcoin development company. We are a publicly-traded operating company committed to the continued development of the bitcoin network through our activities in the financial markets, advocacy and technology innovation. As an operating business, we are able to use cashflows as well as proceeds from equity and debt financings to accumulate bitcoin, which serves as our primary treasury reserve asset. We also develop and provide industry-leading AI-powered enterprise analytics software that promotes our vision of Intelligence Everywhere, and are using our software development capabilities to develop bitcoin applications. We believe that the combination of our operating structure, bitcoin strategy and focus on technology innovation provides a unique opportunity for value creation.

MicroStrategy and Intelligence Everywhere are either trademarks or registered trademarks of MicroStrategy Incorporated in the United States and certain other countries.

Forward-Looking Statements

Statements in this press release about future expectations, plans, and prospects, as well as any other statements regarding matters that are not historical facts, may constitute “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements relating to the size and timing of the offering, the anticipated use of any proceeds from the offering, including the anticipated redemption of the Senior Secured Notes, and the terms of the notes. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including the uncertainties related to market conditions and the completion of the offering on the anticipated terms or at all, the other factors discussed in the “Risk Factors” section of MicroStrategy’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 6, 2024, and the risks described in other filings that MicroStrategy may make with the Securities and Exchange Commission. Any forward-looking statements contained in this press release speak only as of the date hereof, and MicroStrategy specifically disclaims any obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240916423126/en/

MicroStrategy Incorporated

Shirish Jajodia

Investor Relations

ir@microstrategy.com

Source: MicroStrategy

FAQ

What is the size of MicroStrategy's (MSTR) proposed convertible note offering?

MicroStrategy (MSTR) is proposing a private offering of $700 million in convertible senior notes due 2028, with an option for an additional $105 million.

How does MicroStrategy (MSTR) plan to use the proceeds from the convertible note offering?

MicroStrategy (MSTR) plans to use the proceeds to redeem $500 million of its existing Senior Secured Notes, acquire additional bitcoin, and for general corporate purposes.

What will happen to MicroStrategy's (MSTR) bitcoin collateral after the proposed note offering?

Upon redemption of the Senior Secured Notes, approximately 69,080 bitcoins currently used as collateral will be released.

When will MicroStrategy's (MSTR) new convertible notes mature?

The proposed convertible senior notes will mature on September 15, 2028, unless earlier repurchased, redeemed, or converted.