Alex Thorne, Head of Corporate Research at Galaxy Research, shared Galaxy’s analysis on X and added his voice to the discussion on Strategy’s newly announced Digital Credit Capital Framework.
The new rules have sparked debate over whether they will solve the company’s capital structure problems or merely delay them.
How will Strategy’s new capital framework work?
Strategy (Nasdaq: MSTR) recently disclosed its new “Digital Credit Capital Framework” in an 8-K regulatory filing.
Cryptopolitan reported The framework gives the company formal permission to sell up to $1.25 billion worth of Bitcoin. Notably, the company is facing the following issues: Huge unrealized loss Approximately $14 billion for assets held 847,363 $BTC.
The framework creates a formal U.S. dollar reserve policy that introduces modifications to the dividend terms of STRC preferred stock and authorizes a separate repurchase program of both preferred stock and MSTR common stock for $1 billion each.
The board of directors has set aside the company’s $2.55 billion cash reserves, limiting its use to preferred dividends and debt interest.
If the current annual spending rate of approximately $1.76 billion is maintained, this reserve is expected to last approximately 17 months. If a fully authorized sale of Bitcoin were to take place, total liquidity would reach approximately $3.8 billion, enough to cover approximately 26 months of debt.
Alex Thorne of Galaxy Research pointed out At the heart of the debate is whether these new rules actually solve Strategy’s capital structure problems or merely delay them.
The company sold 32 pieces $BTC In late May, it raised about $2.5 million in its first-ever Bitcoin sale to cover dividend payments. JP Morgan Recommended Rather than selling Bitcoin, the strategy sells stocks to raise funds.
Are investors buying MSTR stock?
MSTR stock rose 12.6% to $92.68 on Monday after the filing was disclosed, but its value had increased by Wednesday. Soared over $100. This figure represents a 27% increase compared to last Friday’s closing price. of STRC preferred stock The stock also rose, closing at $87.87 on July 3rd.
Benchmark Equity Research thinks this framework is a good one. The company has kept MSTR’s investment judgment at “buy” and set the price target at $570.
Strategy executives, including Chairman Michael Saylor, say the company needs an overhaul to shore up its credibility. “Digital credit requires liquidity, discipline and active capital management,” Thaler said.
Strive, another company pursuing a Bitcoin-backed capital structure, told investors on July 2 that they should not assume the company will automatically issue new shares of SATA preferred stock with a par value of $100, citing unusual market conditions.
Jeff Walton, chief risk officer at Strive, revealed figures showing short interest in SATA increased by about 1 million shares in the 30 days ending June 30, and borrowing costs jumped from 6.1% to 68.6% annually over the same period.
