Microstrategy Investors Should Be Cheering the "Risk-less" Debt Offering!

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(Edited)

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Microstrategy (MSTR) has been falling of late due to the report that the company is raising almost $1 billion in new debt. Most alarmingly to some, albeit to the cheers of others, the debt will be used to double down on the company's bitcoin hold strategy.

Here's what investors seem to be missing on the latest debt offering by Microstrategy (MSTR):

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https://www.sec.gov/Archives/edgar/data/1050446/000119312521045792/d119477dex992.htm

So here's the summary:

Saylor is raising almost $1 billion of interest-free cash which is essentially a disguised equity offering pretending to be a debt offering due to the convertible nature of the bonds. He's using the funds to buy more bitcoins, which only helps to further the value of the previously bought BTC currently in the company's treasury. The kicker is that this disguised equity raise only begins to dilute shareholders at a price almost 50% higher than the current market price.

Overall, this investment further leverages the bet Microstrategy is taking on Bitcoin. However, the debt being raised is pretty risk-less from an equity standpoint if one believes in the future of Bitcoin. There is no interest on the debt, and the dilution to shareholders occurs at a price in excess of the current price. Indeed, the only risk lies in the fact that more obligations are being taken on a strategy that investors already seem comfortable with undertaking in anyways.

Posted Using LeoFinance Beta



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