Leveraging for Growth: Strategy’s Capital Structure

Strategy’s capital structure is a key driver of its growth and long-term vision. By maintaining a 25% leverage ratio, the company ensures it can aggressively accumulate Bitcoin while managing financial risks effectively. This article explores how Strategy utilizes leverage, mitigates risk, and raises capital to fuel its expansion.

The 25% Leverage Ratio: A Strategic Balance

Strategy targets a leverage ratio of approximately 25%, meaning it finances about one-quarter of its Bitcoin holdings through debt. This strategy allows the company to amplify its exposure to Bitcoin while avoiding the dangers of excessive leverage.

Why 25%?

  • Risk Control: By capping leverage at 25%, Strategy minimizes the risk of forced liquidations, even during Bitcoin price volatility.
  • Sustainable Growth: This ratio ensures the company can raise capital consistently without jeopardizing financial stability.
  • Debt Management: With long-duration, fixed-rate debt, Strategy has the flexibility to manage market cycles effectively.

“We want to just pick just the right amount of leverage—the leverage that allows us to benefit our shareholders without creating undue uncertainty.” — Michael Saylor

Risk Management Approach

1. Convertible Bonds Over Traditional Debt

Strategy issues convertible bonds rather than traditional loans. These bonds allow investors to convert debt into equity, reducing the risk of forced Bitcoin sales.

2. Strategic Debt Repayment

The company selectively refinances high-cost debt and pays off obligations when advantageous. For instance, they retired their $1.05B of 2027 Convertible Notes and settled all conversion requests in shares on January 24, 2025.

3. Avoiding Margin Loans

Unlike traditional margin loans that require Bitcoin collateral and risk forced liquidation, Strategy’s debt structure is unsecured or backed by strategic reserves, making it more resilient.

4. Adaptive Capital Deployment

The company monitors market conditions to determine when to raise capital, buy Bitcoin, or slow down its leverage strategy, ensuring agility in a volatile market.

Capital Raising Methods

Strategy employs four primary capital-raising strategies:

1. At-The-Market (ATM) Equity Offerings

  • Strategy sells shares at market prices to raise cash and buy Bitcoin.
  • Unlike traditional stock issuance, ATM offerings gradually add liquidity, minimizing shareholder dilution.

2. Convertible Debt Issuance

  • Strategy issues zero or low-coupon convertible bonds, giving investors the option to convert them into equity.
  • These bonds have historically performed well, often outpacing Bitcoin itself in returns.
Convertible notes

3. Traditional Debt (Senior Notes & Secured Loans)

  • Used selectively, such as the 2021 senior secured notes backed by Bitcoin, allowing for additional borrowing capacity.
  • These instruments help optimize capital structure while keeping leverage at manageable levels.

4. Preferred Stock & Fixed Income Instruments

Strategy has issued 7.3 million shares of 8.00% Series A Perpetual Strike Preferred Stock at $80 per share, raising $563.4 million for Bitcoin acquisitions and general corporate purposes.

The stock carries a $100 liquidation preference and 8.00% annual dividends, payable quarterly. Holders can convert shares into Class A common stock at an initial rate of 0.1000 shares per preferred stock. Strategy retains redemption rights under specific conditions.

Conclusion

Strategy’s 25% leverage ratio is a deliberate strategy that balances aggressive Bitcoin accumulation with financial prudence. By leveraging capital markets intelligently, avoiding unnecessary risk, and employing flexible capital-raising methods, the company maximizes shareholder value while securing its position as the leading Bitcoin treasury company.

As Bitcoin adoption grows, Strategy’s capital structure will continue to evolve, potentially incorporating new financial instruments while maintaining its core strategy of leveraged Bitcoin accumulation.