Author: TVBee
┈➤Preferred shares are both a genius and a rogue
Preferred shares are a very special financing tool. They have the legal status of equity but possess strong debt-like economic attributes.
In financial treatment, they can be classified as either liabilities or equity.
╰✦Debt-like aspect
Preferred shareholders do not receive high dividends when the company performs well; instead, they regularly receive dividends at a fixed dividend rate, similar to debt instruments.
Except for STRC, whose dividend rate is floating, but within a certain period, its dividend rate is also fixed.
On the other hand, STRC has a dividend payout direction opposite to that of common shares.
When a regular company performs well, common shares may issue higher dividends. However, when BTC rises, STRC’s dividend rate does not need to increase.
Conversely, when BTC falls, MicroStrategy may need to raise STRC’s dividend rate to issue STRC for financing.
Thus, STRC, like other fixed-dividend preferred shares of MicroStrategy, has the appearance of equity but a strong debt-like nature underneath.
╰✦Equity-like aspect
Unless there are rigid redemption and payment conditions (such preferred shares are classified as liabilities in accounting), preferred shares are typically recorded as equity in financial statements: there is no repayment pressure before corporate bankruptcy liquidation, and preferred share dividends are not mandatory liabilities.
This is the magic of Saylor’s use of preferred share financing: without rigid redemption and payment clauses, these preferred shares of MicroStrategy are not traditional liabilities in financial terms.
Thus, MicroStrategy’s preferred shares:
Not traditional debt → No risk of insolvency from principal → Suspension of dividends does not cause debt default → No bankruptcy liquidation trigger → No repayment pressure on principal
Equity-class preferred shares themselves form a self-contradictory virtuous cycle, which is somewhat genius.
Therefore, preferred shares are jokingly called “perpetual rogue leverage.”
┈➤Can’t pay preferred dividends? They can accumulate
If, in the short term, MicroStrategy lacks funds to pay preferred share dividends, it can simply defer them. STRD is non-cumulative in dividends, so they can even be suspended directly without deferral.
Once BTC recovers and rises, MicroStrategy can continue issuing common shares to raise funds to catch up on preferred dividend payments.
┈➤The key to MicroStrategy’s bankruptcy lies in convertible bonds
Unless BTC is in a prolonged bear market with deep market pessimism, preventing MicroStrategy from raising funds through MSTR issuance for an extended period until convertible bonds mature—if conversion conditions are not met, MicroStrategy may need to repay the convertible bonds, potentially forcing it to sell BTC and triggering a cascade of sell-offs.
In this cascade triggered by convertible bonds, preferred share dividends would only worsen the death spiral.
Thus, suspension of preferred dividends may cause emotional panic in the BTC market, but convertible bonds are the true trigger of a real crisis.
However, the earliest repayment date for MicroStrategy’s convertible bonds is September 16, 2027. By then, the bear market will most likely have ended.
┈➤MicroStrategy’s USD reserves
From June 15 to 21, MicroStrategy raised $335.5 million, all from issuing MSTR, with no additional preferred shares.
It purchased 520 BTC, increasing its USD reserves from $1.1 billion to $1.4 billion.
Preferred dividends can cover full payments through February 2027 and about half of March 2027.
First, over the past four weeks, MicroStrategy has not issued any preferred shares at all, meaning no increase in future dividend obligations and no expansion of risk.
Second, over the past four weeks, MicroStrategy has progressively raised funds by issuing common stock $MSTR : $128.3 million, $181 million, $209 million, and $333.5 million respectively, strengthening its financing capacity.
Third, over the past four weeks, MicroStrategy added BTC holdings of -32 coins, 1,550 coins, 1,587 coins, and 520 coins, respectively. While financing amounts increased, BTC purchases did not, which is somewhat unfavorable for $MSTR in the short term, but enhances the long-term security of the MicroStrategy system.
By March next year, the BTC bear market will likely have ended. Once BTC and MSTR enter an upward trend, MicroStrategy can continue to issue additional MSTR for financing and allocate part of the proceeds to replenish USD reserves to cover future preferred dividends.
As BTC and MSTR rise, the burden of preferred dividend payments will gradually ease.
