Strategy Says It Can Sell Bitcoin To Fund Buybacks, Dividends Without Abandoning BTC Bet

• Strategy announced the Digital Credit Capital Framework for liquidity management amid a weak crypto market.
• The program represents a strategic shift for Strategy, allowing the sale of BTC to cover preferred dividends and enhance liquidity.
• The dividend rate on Variable Rate Series A Perpetual Stretch Preferred Stock was increased from 11.5% to 12% per year.

Over the last 5 years, Strategy (MSTR) has aggressively issued equity, convertibles, and preferred securities to purchase Bitcoin (BTC). However, amid current weakness in the crypto market, the company announced on Monday that it is establishing a new framework for liquidity management.

Strategy named it the Digital Credit Capital Framework, which includes a Bitcoin monetization program, a $1 billion authorization to buy back MSTR shares, and a $1 billion plan to repurchase preferred securities.

The Bitcoin Monetization program is the most important piece. For a company whose signature promise has been to hoard Bitcoin and never sell, the board's move that it can sell BTC to pay for preferred dividends, replenish its cash reserve, or fund buybacks is a clear shift in posture, even as Strategy insists Bitcoin remains its "primary treasury reserve asset."

The move was called a move to “active capital management.” Digital Credit requires liquidity, discipline and active capital management, said Saylor, language that implies the end of the era of one-way issuance to buy Bitcoin without regard for instrument pricing.

MSTR stock was up over 2% in early morning trade. On Stocktwits, the retail sentiment around MSTR remained in the ‘bullish’ zone, while chatter around it shifted to ‘high’ from ‘extremely high’ over the past day.

The Liquidity Engine

The company also said it had approximately $2.55 billion in U.S. dollar reserves, enough to pay about 17.4 months of its annual preferred dividend and interest obligations of approximately $1.76 billion. Total dividend coverage was about $3.80 billion, or 25.9 months, including $1.25 billion of authorized Bitcoin-sale capacity. 

The reserve may be used only for payment of preferred dividends and debt interest. “The board set a minimum reserve policy of 12 months' coverage; 'Any reduction below 12 months will require Board authorization,” the company said in a statement.

Defending the Preferred

Strategy also increased the dividend rate on its Variable Rate Series A Perpetual Stretch Preferred Stock (STRC) to 12% per year, up from 11.5%, effective for record dates on or after July 1.

The company said it plans for STRC to trade around approximately $99 to $100 and will reassess the rate monthly against trading levels, market yields, and Bitcoin volatility. The preferred buyback programme will initially focus on the STRC repurchase, which is for securities trading at discounts to par.  “STRC’s trading price may vary, including significantly lower, from such range, and Strategy cannot assure or guarantee investors that STRC will trade in that range, or at any particular price,” said the company.

CEO Phong Le said Strategy was "evolving from one-way capital issuance to active capital management," moving between issuing and repurchasing securities depending on where they trade.

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