Maintaining funding channels and capital markets optionality has value but if push comes to shove his allegiance is obvious.
This includes deferring the $STRC interest, tanking the $ price and forcing a coercive exchange to crystallise the discount for the benefit of the common."
I have seen a few of these takes, but I don't follow the logic?
Right now he can issue 3-5% of market cap and provide cash runway for interest+divs into 2028. This is a very modest cost to keep everything on track and buy time for a crypto recovery.
Instead of this path, you think he will tank the prefs, and close off MSTR from capital markets? He might do this, but it seems super risky for his ability to control MSTR.
I think you are right that the prefs would initially tank given the poorly informed, largely retail holder base. But doesn't that churn the holder base from unorganized retail into organized distressed debt hedge funds who start getting Board seats after 4 missed pmts? Surely credit funds would be attracted to >20% yields for prefs at 5%-20% LTV (assuming the prefs tank). And once you get credit hedge funds on the board, potentially representing 33%-50% of directors, it's really hard to predict how it will go for Saylor himself. I think he will avoid that path.
I was talking in a hypothetical downturn scenario (eg. where BTC trends to 35-45k, the MSTR NAV premium turns to a discount and he as to make tough decisions about selling BTC and/or maintaining the pref dividend)
If the funding channels are closed he would look to extend runway by extracting concessions from the convert+pref stack.
I agree this is NOT the current case - just highlighting what he might do if his back were against the wall.
On your Q regarding distressed hedge funds: the issue they will see is that the docs are really weak and provide very little negotiating leverage and zero triggers or governance step-in rights. You are a complete passenger and held hostage to Saylor, by design. There is probably a level where the upside/downside becomes interesting in a way where you can hedge BTC – but the problem is if the holder base churns to HFs then MS really won’t care, why would he go out of his way and compromise MSTR’s BTC holdings to satisfy distressed HFs if he doesn’t have to?
I have been assuming share settlement (and using PF NOSH) as most likely given they are probably looking to maximise liquidity/optionality all else being equal
What will be interesting to see is whether they implement a buyback program post AT&T
“The most obvious source of funding would be…ATM common offerings. This is becoming a more dilutive proposition by the day”
I would frame ATM issuance at current prices as less accretive rather than using the term dilutive. MSTR still trades at a premium to NAV.
It’s such an easy release valve for him. He needs to dilute by 3-4% right now in order to get 18 months of runway. Seems quite achievable.
What I don’t understand is how it sustains a premium to NAV. There are so many examples of holding companies at massive discounts to NAV. Echostar today is prob around 30-35% discount to NAV, Prosus is 50%, Exor is 60%.
And none of these examples have ugly financing structures with high cost, non tax deductible prefs.
Yes that's a more accurate framing (although he probably needs a 10% buffer historically to account for shoddy BTC execution!).
I think he is overly tempted to use any excess cash to buy BTC (see his most recent posts...) and still thinks he can create a floor / positive momentum. If BTC drops to the 50s from here I would be shocked if the NAV premium is still positive
I think buying more BTC is great if he is funding it via issuance. That’s building solid LTV for prefs and building a little bit of value at current prices for equity.
From Origo on Twitter:
"Michael Saylor's incentives are pretty clear?
• Owns 19.6m shares of $MSTR common worth $2.2B
• Personally holds 17.8k BTC worth $1.2B
• Zero $STRC
Maintaining funding channels and capital markets optionality has value but if push comes to shove his allegiance is obvious.
This includes deferring the $STRC interest, tanking the $ price and forcing a coercive exchange to crystallise the discount for the benefit of the common."
I have seen a few of these takes, but I don't follow the logic?
Right now he can issue 3-5% of market cap and provide cash runway for interest+divs into 2028. This is a very modest cost to keep everything on track and buy time for a crypto recovery.
Instead of this path, you think he will tank the prefs, and close off MSTR from capital markets? He might do this, but it seems super risky for his ability to control MSTR.
I think you are right that the prefs would initially tank given the poorly informed, largely retail holder base. But doesn't that churn the holder base from unorganized retail into organized distressed debt hedge funds who start getting Board seats after 4 missed pmts? Surely credit funds would be attracted to >20% yields for prefs at 5%-20% LTV (assuming the prefs tank). And once you get credit hedge funds on the board, potentially representing 33%-50% of directors, it's really hard to predict how it will go for Saylor himself. I think he will avoid that path.
I was talking in a hypothetical downturn scenario (eg. where BTC trends to 35-45k, the MSTR NAV premium turns to a discount and he as to make tough decisions about selling BTC and/or maintaining the pref dividend)
If the funding channels are closed he would look to extend runway by extracting concessions from the convert+pref stack.
I agree this is NOT the current case - just highlighting what he might do if his back were against the wall.
On your Q regarding distressed hedge funds: the issue they will see is that the docs are really weak and provide very little negotiating leverage and zero triggers or governance step-in rights. You are a complete passenger and held hostage to Saylor, by design. There is probably a level where the upside/downside becomes interesting in a way where you can hedge BTC – but the problem is if the holder base churns to HFs then MS really won’t care, why would he go out of his way and compromise MSTR’s BTC holdings to satisfy distressed HFs if he doesn’t have to?
Do you see echostar settling their $2B in converts with cash, stock or combination of both later this month?
I have been assuming share settlement (and using PF NOSH) as most likely given they are probably looking to maximise liquidity/optionality all else being equal
What will be interesting to see is whether they implement a buyback program post AT&T
“The most obvious source of funding would be…ATM common offerings. This is becoming a more dilutive proposition by the day”
I would frame ATM issuance at current prices as less accretive rather than using the term dilutive. MSTR still trades at a premium to NAV.
It’s such an easy release valve for him. He needs to dilute by 3-4% right now in order to get 18 months of runway. Seems quite achievable.
What I don’t understand is how it sustains a premium to NAV. There are so many examples of holding companies at massive discounts to NAV. Echostar today is prob around 30-35% discount to NAV, Prosus is 50%, Exor is 60%.
And none of these examples have ugly financing structures with high cost, non tax deductible prefs.
Yes that's a more accurate framing (although he probably needs a 10% buffer historically to account for shoddy BTC execution!).
I think he is overly tempted to use any excess cash to buy BTC (see his most recent posts...) and still thinks he can create a floor / positive momentum. If BTC drops to the 50s from here I would be shocked if the NAV premium is still positive
I think buying more BTC is great if he is funding it via issuance. That’s building solid LTV for prefs and building a little bit of value at current prices for equity.
Agreed. Will find out soon!