MicroStrategy has announced a new initiative to offer $500 million in convertible senior notes, with the funds primarily intended for acquiring additional Bitcoin and supporting general corporate purposes.
On June 13, 2024, MicroStrategy revealed its intention to issue $500 million in convertible senior notes due in 2032. These notes will be offered privately to qualified institutional buyers under Rule 144A of the Securities Act of 1933. This offering is contingent on market conditions and other factors, which means its execution depends on favorable economic environments and investor interest.
Terms and Conditions of the Notes
According to the press release, the convertible senior notes will be unsecured and will constitute senior obligations of MicroStrategy. They will bear interest payable semi-annually on June 15 and December 15 each year, starting on December 15, 2024. The notes are scheduled to mature on June 15, 2032, unless they are repurchased, redeemed, or converted earlier according to their terms.
MicroStrategy’s release provided additional insights into the financial mechanics and investor options:
- Interest Payments: Interest on the notes will be paid twice a year, providing a steady income stream for investors.
- Maturity Date: The notes will reach maturity in June 2032, offering a long-term investment horizon.
- Redemption and Conversion: Investors have the flexibility to convert the notes into MicroStrategy’s class A common stock or redeem them before maturity under specific conditions.
Allocation of Proceeds
The net proceeds from this offering are primarily earmarked for purchasing additional Bitcoin. This move is consistent with MicroStrategy’s long-term strategy of utilizing Bitcoin as its primary treasury reserve asset. Michael Saylor, MicroStrategy’s Executive Chairman, has been a vocal proponent of Bitcoin, advocating for its potential as a store of value and inflation hedge. The remaining funds will be used for general corporate purposes, ensuring the firm can support its operational and strategic initiatives.
In addition to the main offering, MicroStrategy plans to grant initial purchasers the option to buy up to an additional $75 million in aggregate principal amount of the notes. This option provides flexibility and potential additional capital for further Bitcoin acquisitions or corporate needs.
“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,” the press release clarified. This stipulation ensures that a significant portion of the notes remains in circulation, maintaining liquidity and investor interest.
Pricing and Conversion Terms
The final terms of the notes, including the interest rate, initial conversion rate, and other specific conditions, will be determined at the time of pricing the offering. MicroStrategy expects to use the U.S. composite volume-weighted average price (VWAP) of its class A common stock as the reference price for calculating the initial conversion price. The VWAP is calculated from 9:30 am to 4:00 pm EDT on the pricing date, reflecting the average price of the stock during the main trading session.
As with previous offerings, the convertible senior notes and any shares of MicroStrategy’s class A common stock issuable upon conversion of the notes will not be registered under the Securities Act of 1933. This lack of registration means these securities cannot be offered or sold in the public markets unless specific legal conditions are met.
| Detail | Description |
|---|---|
| Amount | $500 million (with an option for an additional $75 million) |
| Type | Unsecured convertible senior notes |
| Maturity Date | June 15, 2032 |
| Interest Payment | Semi-annually on June 15 and December 15 |
| Use of Proceeds | Primarily to acquire Bitcoin and for general corporate purposes |
| Conversion | Into MicroStrategy’s class A common stock |
| Pricing Reference | U.S. composite VWAP of MicroStrategy’s class A common stock on the pricing date |
| Registration Status | Not registered under the Securities Act of 1933 |
| Target Audience | Qualified institutional buyers under Rule 144A |
MicroStrategy’s announcement to offer $500 million in convertible senior notes highlights its unwavering commitment to Bitcoin as a central component of its financial strategy. By leveraging these funds to acquire additional Bitcoin and support its corporate operations, MicroStrategy continues to position itself as a prominent advocate for Bitcoin’s role in corporate treasury management. The offering’s success will depend on market conditions, but it signifies a bold step in the company’s ongoing journey to integrate Bitcoin into its core financial practices.
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