MicroStrategy’s Convertible Notes for Buying Bitcoin Offer Zero Interest

MicroStrategy, led by Michael Saylor, recently completed a $3 billion offering of 0% convertible senior notes due 2029. These unique notes allow investors to benefit from both fixed-income security and equity participation. The sale of the notes was a hit, with initial purchasers jumping on board and exercising an additional $400 million principal amount on Nov. 20.

Despite the 0% interest rate, these convertible notes offer solid protection to investors in the event of bankruptcy as bondholders are prioritized ahead of shareholders. The high conversion rate of 1.4872 class A shares per $1,000 principal amount of notes translates to an initial conversion price of around $672.40, representing a 55% premium over the mid-day share price on Nov. 19.

MicroStrategy used the proceeds from the convertible notes offering to acquire 55,500 Bitcoin at an average price of $97,862 between Nov. 18 and Nov. 24. As of Nov. 24, the company held 386,700 Bitcoins at a cost of $21.9 billion. Bernstein views MicroStrategy’s strategy as sustainable and has raised its price target for the stock to $600 per share, projecting that the company could hold 4% of the world’s Bitcoin by 2033.

The terms of redemption and conversion for the notes are clear: they can be converted into shares at the bondholder’s discretion after Jun. 1, 2029. Additionally, MicroStrategy can redeem the principal amount on or after Dec. 4, 2026, and can call back the bonds under certain conditions related to the stock price.

Although MicroStrategy’s stock ended lower on Monday, the company has shown significant growth compared to the Nasdaq 100 Index. Analysts have varying price targets for MicroStrategy, with the average target indicating a potential downside for the stock. Overall, the company’s innovative financing approach and focus on Bitcoin have attracted attention from investors.