MicroStrategy nets $1.6 billion in junk bond offering to buy Bitcoin

Software firm MicroStrategy has raised $1.6 billion in a junk bond offering — four times the initially sought amount.

Earlier this week, the company announced it would issue $400 million worth of junk bonds in a private offering, with a view to using the proceeds to purchase Bitcoin (BTC). 

Junk bonds are debt offerings by companies without investment-grade credit ratings and typically offer investors higher returns while carrying higher risk. Returns between 6.125% and 6.25% have been floated for the bonds, eclipsing the returns offered by treasury bonds.

“The notes will be fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by MicroStrategy Services Corporation, a wholly owned subsidiary of MicroStrategy, and certain subsidiaries of MicroStrategy that may be formed or acquired after the closing of the offering,” stated MicroStrategy’s announcement.

One day later, the firm announced it would increase its bond offering to $500 million, after which it was inundated with $1.6 billion worth of orders.

MicroStrategy currently holds the most Bitcoin on its balance sheet out of all publicly traded companies, amounting to a dollar valuation of around $3.2 billion — more than twice the value of Bitcoin held by Tesla ($1.4 billion).

MicroStrategy’s stock price soared throughout much of 2020 and 2021 in line with the rising price of Bitcoin. But holding Bitcoin on its balance sheet wasn’t enough to stop MicroStrategy’s stock slide, which eventually came when the cryptocurrency market dipped. Since Bitcoin peaked in early April, the MicroStrategy share price has sunk by 45%.

MicroStrategy also revealed the formation of a new subsidiary to hold its existing 92,079 Bitcoins, dubbed MacroStrategy LLC.

Reaction to the news on social media was typically varied. Bitcoin supporters celebrated the news, noting the massive excess in demand for MicroStrategy’s bonds.

MicroStrategy proposed $400 Million in bonds to buy more #bitcoin and they got $1.6 Billion of interest.

They got 4x more in demand than what they offered.

— Documenting Bitcoin (@DocumentingBTC) June 8, 2021

Crypto skeptic Peter Schiff questioned the wisdom of purchasing an asset that has been historically volatile. Schiff asked how a sudden drop in the price of Bitcoin would affect MicroStrategy’s business operations.

I don’t think @michael_saylor is familiar with Murphy’s Law. What if #Bitcoin crashes below $20K? Will #MicroStrategy sell stock at depressed prices to shore up its balance sheet? Will it sell Bitcoin to raise cash? If MicroStrategy goes bankrupt will creditors HODL its Bitcoin?

— Peter Schiff (@PeterSchiff) June 8, 2021

Let’s wait and see.