MicroStrategy Increases Its Convertible Debt Sale By Another $200 Million To Buy More Bitcoin

Bitcoin development firm MicroStrategy announced on Friday that it has increased its recently announced convertible note offering by $200 million, bringing the total size of the sale to $700 million.

MicroStrategy Raises Debt Offering For Bitcoin

The company also revealed the pricing of its convertible bonds at 2.25% per year. This rate is above the 0.875% offered in March but remains well below the Federal Reserve’s current 5.25% benchmark interest rate.

“MicroStrategy also granted to the initial purchasers of the notes an option to purchase, within a 13-day period beginning on, and including, the date on which the notes are first issued, up to an additional $100 million aggregate principal amount of the notes,” the company added.

The offering is expected to close on June 17, with the notes maturing on June 15, 2032. Proceeds from the sale will be used to acquire additional Bitcoin and for general corporate purposes.

A convertible bond is a debt obligation that pays investors a modest interest rate, typically below the market’s standard lending rate.

However, it also functions as a call option to convert investors’ funds into shares of the company at a future time at a predetermined conversion rate, letting investors potentially benefit if the stock value climbs substantially over time.

The latest offering will let investors convert their funds at an effective rate of $2,043.32 per share, representing a 35% premium from its current price. If willingly converted by bond buyers, this would result in stock dilution for current MSTR investors.

“MicroStrategy estimates that the net proceeds from the sale of the notes will be approximately $687.8 million (or approximately $786.0 million if the initial purchasers exercise in full their option to purchase additional notes). The company said.

Is The Worst Is Over For MSTR?

On Thursday, MicroStrategy announced that it had delivered a full notice of redemption on its first round of convertible notes issued in December 2020 to purchase Bitcoin for $650 million, promising to pay back investors on 100% of what they had initially offered.

Note holders have until July 11 to exercise their option to convert their notes at the predetermined rate of $397.77 per share. This conversion would result in the dilution of up to 1.6 million MSTR shares.

Some perspective on the future $MSTR share dilution.

The conversion of the current 2025 note results in more shares being added to the market than the next 3 combined (2027, 2030, 2031 notes).

This note had 1,633,190 shares, the next 3 combined would result in ~1,526,596.…

— Ben Werkman (@BenWerkman) June 13, 2024

MicroStrategy’s current shares outstanding are 15.77 million, with a daily volume of 1.78 million shares over the past three months, according to Yahoo Finance.

Although the dilution could result in a selloff, some MSTR investors believe that the worst is over for MicroStrategy regarding share dilution.

The future conversions of all of MicroStrategy’s remaining bonds together would result in less dilution than that of its first offering.