Strategy announces $2.1B in STRF preferred stock to extend BTC buying

Strategy (MSTR) announced an expanded funding round, through the intended sale of $2.1B in preferred STRF stock. The move aims to supplement MSTR and STRK sales, which have funded the last few rounds of treasury expansion. 

Strategy (MSTR) announced the intention to sell $2.1B in preferred STRF stock offering 10% returns. It released a new prospectus for the offer terms and potential sales of STRF shares, offering passive income.

Unlike STRK, STRF is not convertible into common stock. 

Stock sales will be hosted by agents

Strategy picked TD Securities (USA) LLC, Barclays Capital Inc., and The Benchmark Company, LLC as sales agents. The firm negotiated an ad hoc sales plan, with none of the agents obliged to sell a certain amount of STRF. The share offerings may happen for a limited period of time, or intermittently, in continuous offers or in blocks. 

The STRF shares were brought to NASDAQ at the end of March and are currently trading at $100.65. The shares bring a 10% annual dividend, paid out quarterly in cash. Strategy has also raised funds with an 8% passive income program linked to STRK convertible shares.

Strategy announced it intends to use the proceeds from the STRF sales for corporate purposes, allocating some of the funds to operating expenses and to the purchase of more BTC.

The new offer is a relatively small addition to Strategy’s potential stock sales. The company has authorized up to $39B in MSTR and STRK shares, which will be deployed in the long term. 

STRF sales are also expected to happen over an extended period, offering the company leeway to negotiate market conditions. Strategy will also retain its right to rebuy STRF shares or defer dividends during bad market conditions. 

STRF sale raises questions on Strategy reliability

The recent BTC market rally was beneficial for Strategy, leading to successful MSTR and STRK sales. All the ATM program assets have different risk ratios and may vary in their primacy for compensation in the case of unfavorable market events. 

STRF seeks to tap demand for predictable passive income with added BTC exposure. However, the prospectus suggests STRF is still linked to overall market performance. Strategy has outlined its practice of funding its passive income offerings with additional stock sales.

“We expect to fund any dividends paid in cash on the perpetual strife preferred stock primarily through additional capital raising activities, including, but not limited to, at-the-market offerings of our class A common stock and our preferred stock,” announced Strategy in its prospectus for the US SEC.

The company warned it may choose not to pay out dividends or be unable to secure the required cash. Strategy has already warned in its prospectus that its debt load may lead to unfavorable financing conditions and an inability to fund new BTC purchases.

Despite this, demand for Strategy assets remains relatively high. 

Following the latest BTC all-time high above $111,000, MSTR shares traded at $402.69, still close to their six-month high. STRK traded at $100, rising from a low of $83 in April.

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