Michael Saylor, executive chairman of Strategy (MSTR), the world’s largest public holder of bitcoin, introduced the firm’s fourth perpetual preferred equity offering, Stretch, (STRC), in late July. Saylor described STRC as Strategy’s iPhone moment, a breakthrough that redefines corporate finance.
STRC, dubbed by the firm as “Short Duration High Yield Credit” Stretch, is a perpetual preferred stock designed to behave like a high yield, low volatility cash instrument. It pays an 11% annual dividend, distributed monthly in cash, based on a $100 par value.
Unlike traditional preferred shares, the dividend can be adjusted on a monthly basis under preset rules. The objective is straightforward, keep STRC trading close to $100 and reduce the price swings normally associated with high yielding securities.
For investors, the appeal is simple. With short duration U.S. Treasury yields near 3.5%, STRC offers roughly three times the yield, without long duration risk or large price volatility.
Within Strategy’s capital structure, STRC sits senior to common equity and other preferred shares such as STRD and STRK, but remains junior to corporate debt and the STRF preferred series. This positioning gives STRC a stronger claim on cash flows while allowing Strategy to raise capital without increasing leverage.
Strategy funds the bitcoin purchases using at the market share sales when the security is trading at $100 par value. As of last week the firm raised $119.1 million in net proceeds from STRC ATM sales, alongside $1.12 billion from common stock issuance, together funding the purchase of 13,627 bitcoin.
While, the STRC dividend has been raised multiple times and now sits at 11% to find investor appetite.
On Monday, STRC traded $175.7 million, nearly three times its 30 day average trading volume of $63.6 million, with all trades occurring above $100 on Monday.
In November, Strategy used roughly $130 million of STRC ATM issuance while the shares traded nat par for the first time for roughly one week.
The company’s objective is to sustain STRC trading at or near par on an ongoing basis in order to accumulate more bitcoin.
