[ad_1]
MicroStrategy Inc. MSTR -3.07% is borrowing $ 400 million in junk bonds to buy more bitcoin, adding to the company’s bet that digital assets will outweigh cash.
This is the third sale of bonds from Tysons Corner, Virginia, to buy bitcoin in less than a year. The new banknotes due in 2028 will be asset-backed against the company and any bitcoin or other digital assets acquired after the transaction closes, excluding any claims on the company’s existing digital asset portfolio. business.
In a document filed on Monday, MicroStrategy said it expects to post a loss of $ 284.5 million, based on fluctuations in the market price of bitcoin, in its next earnings report. The company held more than 92,000 bitcoins as of mid-May, according to documents filed by the company.
The prices of the company’s existing debt have fallen in recent months. The company’s $ 550 million convertible note due 2025 recently traded at 135.073 cents to the dollar, according to MarketAxess. That’s down from around 200 cents in early April. Investors can swap convertible debt for stocks if the stocks reach a predetermined price.
MicroStrategys’ $ 1 billion convertible note due 2027 is trading at 67.307 cents to the dollar, implying a return of 7.089%. That’s down about 101 cents in February. The company’s stock price fell 3.1% on Monday to $ 469.81.
MicroStrategy, which sells software and data analysis services to businesses, has captured the attention of investors over the past year by betting big on bitcoin.
Last year, the company sold over $ 1.6 billion worth of convertible bonds to buy the cryptocurrency.
MicroStrategy’s shares are up more than 364% from August 2020, the same month the company announced its first bitcoin investment, beating the S&P 500 by nearly 28% gain over that period.
The price of bitcoin has fallen significantly since MicroStrategys stock peaked, trading around $ 36,000 on Monday from April highs above $ 62,000. MicroStrategy’s shares are down more than 60% from a record high of around $ 1,272 in February.
MicroStrategy paid an average of $ 24,450 per bitcoin as of May 18, according to documents filed by the company.
MicroStrategys revenue has barely increased in a decade, reaching over $ 480 million last year from $ 455 million in 2010. But bitcoin purchases have garnered attention and new business, some analysts say. New accounts on MicroStrategy’s website grew 281% in the first quarter, according to data compiled by analysts at Canaccord Genuity.
Michael Saylor, the company’s chief executive, said the purchase of bitcoin was aimed at preventing the company’s purchasing power from declining. He expects higher inflation to erode the value of cash over time. MicroStrategys’ existing bitcoin wallet will be owned by a newly formed subsidiary, MacroStrategy LLC, the company said on Monday.
MicroStrategy did not respond to requests for comment on the bond sale.
Previous sales have resulted in some downgrading of shares. Citigroup analysts have recommended investors sell stocks despite what they described as the best first quarter performance in recent memory. Issuing new debt to fund Bitcoin purchases is aggressive and may be a disruption for some software investors, they wrote in an April memo.
Companies with bitcoin in their treasury face accounting risk. Since bitcoin and other digital assets are considered indefinite-lived intangibles rather than currencies, even a temporary drop below what the business paid for them can force a business to depreciate their value. MicroStrategy recorded a net loss in the third quarter in part due to fluctuations in the price of bitcoin.
If a company is substituting cash in its treasury to buy cryptocurrency, that’s speculation, said David Kotok, chief investment officer at Cumberland Advisors. They can win, they can lose, but that’s not their core business.
Others are more optimistic about the company’s move. Canaccord Genuity analysts set a price target of $ 920 on MicroStrategy shares, citing a combination of its bitcoin holdings and healthy core software activity.
The halo effect of MicroStrategys’ Bitcoin strategy translates into additional leads for the core business, they wrote in a note on April 29.
For John McClain, portfolio manager at Diamond Hill Capital Management, the new MicroStrategy bonds represent a lower risk, lower return opportunity for investors who might think bitcoin is currently undervalued. Unlike the company’s existing notes, which convert into shares, investors in the new issue will not benefit from the appreciation of MicroStrategys’ digital asset portfolio. But they will have the real business as collateral.
If bitcoin were to fall by 75%, lenders would still have broad collateral coverage, he said.
Write to Sebastian Pellejero at [email protected]
Copyright 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
[ad_2]
picture credit