MicroStrategy CEO Phong Le attributed the 25% decline in the value of its STRC preferred stock this summer to an unexpected surge in leverage. Investors borrowed funds against their Bitcoin holdings at a 6% interest rate to capture the 12% annual dividend offered by STRC, which is designed to trade near a $100 face value. When Bitcoin prices dropped, these leveraged positions faced margin calls, forcing holders to sell STRC and driving the price down to approximately $75 in late June.
In response to the volatility, the company initiated a buyback program in late July, funded by sales of its common stock, MSTR, and potentially Bitcoin. Le noted that increasing dividends would have depleted cash reserves, whereas buybacks reduce future dividend obligations. The company currently maintains a cash reserve of $5.1 billion, which is earmarked to cover preferred dividends and interest on convertible debt for approximately three years.
Institutional ownership of STRC has increased from 20% to 30%, as long-term investors replace those who exited leveraged positions. The stock has since recovered to trade near $99. The next dividend payment is scheduled for October 15 for shareholders of record as of September 30. CEO Phong Le emphasized that 95% of his compensation is linked to MSTR share performance and encouraged investors to maintain a three-year outlook.
