Strategy announces new STRF preferred stock offering
In a significant move to expand its capital raising capabilities, Strategy (Nasdaq: MSTR; STRK) announced today its intention to offer 5 million shares of Series A Perpetual Strife Preferred Stock (STRF) through a public offering. The announcement marks another innovation in the company’s ongoing efforts to fund its Bitcoin acquisition strategy.
Strategy Announces Proposed STRF Preferred Stock Offering
TL;DR
- Strategy is issuing 5 million shares of STRF preferred stock with a 10% fixed dividend yield to raise funds for further Bitcoin acquisitions.
- Unpaid dividends will compound at an increasing rate, up to 18% per annum, incentivizing timely payments.
- The liquidation preference of STRF shares will dynamically adjust based on market conditions and previous sales transactions.
- Strategy intends to use the proceeds to expand its Bitcoin treasury, reinforcing its position as the largest corporate Bitcoin holder.
- The offering is underwritten by Morgan Stanley, Barclays, Citigroup, and others, signaling strong institutional interest.
Strategy Announces Proposed STRF Preferred Stock Offering
Key details of the STRF preferred stock
The new preferred stock comes with several notable features that distinguish it from Strategy’s existing financial instruments:
10% fixed dividend yield
The STRF preferred stock will accumulate dividends at a fixed rate of 10.00% per annum on the stated amount. This rate is significantly higher than the 8.00% offered on the company’s existing STRK preferred shares, potentially reflecting evolving market conditions or a strategic decision to attract different investor profiles.
These dividends will be payable quarterly, beginning on June 30, 2025, provided they are declared by Strategy’s board of directors. The company has specified that all declared regular dividends will be paid solely in cash.
Compounding mechanism for missed payments
A unique feature of the STRF offering is its compounding mechanism for any missed dividend payments. If Strategy fails to pay a scheduled dividend, additional “compounded dividends” will accumulate on the unpaid amount at an initial rate of 11% (the base 10% plus 100 basis points).
This rate includes a penalty escalation clause – the compounded dividend rate will increase by 100 basis points (1%) per quarter until the unpaid dividend is settled, up to a maximum rate of 18% per annum. This structure creates a strong incentive for Strategy to maintain regular dividend payments.
Liquidation preference and adjustment mechanism
The STRF shares will have an initial liquidation preference of $100 per share. However, the offering includes a dynamic adjustment mechanism that could potentially increase this preference based on market conditions and future share issuances.
After the initial offering, the liquidation preference will adjust daily to the greatest of:
- The stated amount ($100)
- The last reported sale price of STRF shares on the trading day immediately before the current business day (in cases where Strategy has executed sales transactions of STRF)
- The average closing price over the preceding ten trading days
This floating liquidation preference represents a novel approach to preferred stock structuring, potentially offering investors protection against future dilution or price declines.
Strategic implications for Bitcoin acquisition
Strategy intends to use the net proceeds from the offering “for general corporate purposes, including the acquisition of bitcoin and for working capital.” Given the company’s established pattern of Bitcoin accumulation, it’s reasonable to expect that a significant portion of the funds raised will be directed toward increasing the company’s already substantial Bitcoin holdings of 538.200 BTC.
This offering continues Strategy’s innovative approach to capital raising, which has previously included:
- Convertible bonds with ultra-low interest rates (currently averaging 0.421%)
- At-the-market (ATM) equity offerings
- The existing STRK preferred shares with an 8% dividend
The new STRF preferred shares add another dimension to Strategy’s financial toolkit, potentially allowing it to tap into income-focused investors seeking higher yields than those available through its existing instruments.
Building on the Bitcoin treasury model
Strategy has established itself as “the world’s first and largest Bitcoin Treasury Company,” with Bitcoin holdings valued at approximately USD 50.156 bln. The company currently owns approximately 2.56% of the total Bitcoin supply, making it by far the largest corporate holder.
In its press release, Strategy described its approach as one that provides “investors varying degrees of economic exposure to Bitcoin by offering a range of securities, including equity and fixed-income instruments.” This latest offering extends that range, giving income-oriented investors a higher-yield option for gaining indirect Bitcoin exposure.
The company has consistently focused on increasing its Bitcoin per share metrics through financial engineering. Its current Bitcoin yield stands at +10.97% year-to-date, and each diluted share represents 0.00178004 BTC BTC. The success of this approach is evident in Strategy’s market capitalization of USD 92.25 bln, which trades at a premium of 2.069x to its Bitcoin NAV.
Market positioning and underwriters
The STRF offering will be managed by several major financial institutions as joint book-running managers:
- Morgan Stanley & Co. LLC
- Barclays Capital Inc.
- Citigroup Global Markets Inc.
- Moelis & Company LLC
The involvement of these major institutions underscores the mainstream financial acceptance of Strategy’s Bitcoin-focused business model. The company also noted that Fidelity Brokerage Services LLC and Fidelity Capital Markets will act as selling group members for the offering, potentially broadening distribution to retail investors.
Redemption and repurchase provisions
The STRF preferred stock includes several provisions that could affect its long-term status:
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Limited redemption rights - Strategy reserves the right to redeem all (but not less than all) shares of the preferred stock if the total outstanding falls below 25% of the original issuance amount.
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Tax event redemption - The company can also redeem all shares if “certain tax events occur,” though the specific nature of these events was not detailed in the announcement.
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Fundamental change repurchase - Holders will have the right to require Strategy to repurchase their shares if a “fundamental change” occurs, with payment at the stated amount plus accumulated dividends.
These provisions create a balance between providing the company with flexibility to manage its capital structure while offering investors some protection against significant corporate changes.
Evolving corporate identity
The announcement also highlights Strategy’s evolving identity beyond its Bitcoin treasury operations. The company describes itself as providing “industry-leading AI-powered enterprise analytics software, advancing our vision of Intelligence Everywhere.”
This dual focus – combining Bitcoin accumulation with ongoing software innovation – reflects Strategy’s unique position in the market. Unlike pure Bitcoin investments, Strategy offers exposure to both Bitcoin’s potential appreciation and the company’s operational capabilities.
Forward-looking considerations
As with any security offering, Strategy’s announcement included the standard forward-looking statements disclaimer, noting that actual results may differ from expectations. Key factors that could influence the success of this offering include:
- Market conditions affecting both Bitcoin and broader financial markets
- Investor appetite for high-yield preferred shares in the current interest rate environment
- Strategy’s ability to effectively deploy raised capital to acquire Bitcoin at favorable prices
- Long-term Bitcoin price performance
For investors considering this offering, these factors will be critical in evaluating the risk-reward profile of the STRF preferred shares.
Conclusion
Strategy’s proposed STRF preferred stock offering represents another innovative step in the company’s Bitcoin accumulation strategy. By offering a 10% fixed dividend yield with potential upside through the floating liquidation preference, Strategy is creating a unique financial instrument that combines income generation with indirect Bitcoin exposure.
As Strategy continues to pioneer new approaches to corporate Bitcoin adoption, this latest offering further cements its position at the intersection of traditional finance and digital assets. The company’s ability to continually access capital markets through diverse instruments has been a key factor in its success at building the world’s largest corporate Bitcoin treasury.