Strategy has announced a pivot in how it manages capital going forward, with Bitcoin sales, share buybacks of up to $2 billion in its own securities, and increasing the dividend on distressed STRC preferred stock to 12% all on the table according to an 8-K filing with the Securities and Exchange Commission on Sunday.
The pivot comes amid a $14 billion setback to its holdings of 847,363 bitcoin, which the company also disclosed in its filing, with bitcoin trading at around $60,500 at the time of the announcement.
Now, the Michael Saylor-led firm has responded with a five-part plan in its “Digital Credit Capital Framework.”
What is the strategy’s digital credit capital framework?
The strategy’s digital credit capital framework is viewed by observers as the company’s first systematic attempt to manage the financial pressures faced by critics such as Peter Schiff, analysts at CryptoQuant, and even… Ripple CEO Brad Garlinghouse It has been flagged in recent weeks.
Specific details shared on SEC filing Includes:
- Official US dollar reserve policy.
- Revised STRC Dividend Rate.
- Two separate buyback programs.
- Bitcoin monetization program.
The strategy must maintain its cash reserve
On the reserve policy side, Strategy’s board of directors approved a policy that prohibits the company from using its $2.55 billion cash reserve for anything other than preferred stock dividends and interest payments on debt.
Under the plan, the Strategy Department is expected to be in a position to cover at least 12 months of its obligations, without any announced exceptions.
For now, the company is safely in the green zone. Its cash reserve of $2.55 billion means it doesn’t have to worry about any cash pressure for at least the next 17.4 months based on its current spending rate of about $1.76 billion per year.
Does Strategy Now have a stock buyback program?
The board has given the green light to a $2 billion plan to buy back its preferred and common stock in an equal split of $1 billion across each class.
In simpler terms, this means the strategy has authorization to repurchase up to $1 billion of STRC, STRF, STRD, and STRK and a separate $1 billion program for its Class A common stock, MSTR.
Although the program exists now, the strategy has no binding commitment to actually purchase anything. In fact, it has wiggle room to suspend or cancel any of its preferred or common stock programs without notice.
BTC monetization is the most interesting update
Of all the updates it has shared, all eyes are actually on how the strategy plans to move forward with its Bitcoin monetization program.
The software gives the strategy the freedom to sell Bitcoin when it sees a window. Any money generated from those sales, if they occur, will go toward rebuilding cash reserves, funding dividends, or financing buyback programs.
The $1.25 billion in sales that the company’s board of directors gave the green light in this category will be added to the current reserve of $2.55 billion. If these sales occur, they would bring total liquidity coverage to approximately $3.8 billion, or about 26 months of liabilities before accounting for buybacks, taxes or transaction costs, according to Strategy press release.
Cryptopolitan had previously reported that the company sold 32 bitcoins for $2.5 million to help fund the dividend payment.
STRC rates are getting another interest rate increase
As of July 1, the annual dividend on distressed STRC preferred stock had risen to 12%, the filing shows. Before this latest hike, the instrument went through seven rounds of interest rate increases, from 9% to 11.5%. Cryptopolitan previously reported that STRC closed Friday near $74.57, a roughly 25% discount.
michael saylor, Ever the bullDevelop a comprehensive reform framework on credit quality. “Digital credit requires liquidity, discipline, and active capital management,” Saylor said in the press release. The framework is “designed to enhance credit quality and enable the company to reduce expected preferred stock dividend payments as they accumulate,” he continued.
CEO Phuong Lo read from the text, saying the strategy is moving from a capital issuance model to active capital structure management through issuance and buybacks.
MSTR shares rose 6% in premarket trading after the announcement, and STRC shares rose about 9%. Bitcoin itself rose modestly to around $60,500.
Will the strategy start selling Bitcoin now?
While the framework puts the cards in the strategy’s hands to sell Bitcoin if it wants to, whether the company will actually unload any of its inventory is entirely at management’s discretion.
Possible situations that could force the strategy could be $1 billion in debt due in 2027. I mentioned previously CryptoQuant estimates that the company needs about $2.8 billion in cash over the next two years to steady the ship in terms of dividend coverage.
In the meantime, investors will be watching quarterly disclosures on bitcoin sales, reserve balances, and buyback activity in upcoming filings to see which way the strategy ship is heading.
