Leverage Squeeze Sends $9.3 Billion Preferred Stock into Tailspin
Strategy's $9.3 billion preferred stock, STRC, plummeted by 25% this summer due to an unexpected surge in borrowed money, according to CEO Phong Le.
In an interview with Natalie Brunell, Le revealed that the company underestimated the amount of leverage that entered the market, resulting in a sharp price drop for STRC. The preferred stock, which pays a 12% annual dividend and is designed to trade near its $100 face value, sank to around $75 in late June.
The collapse was attributed to investors borrowing against their Bitcoin (BTC) at about 6% to collect the higher yield offered by STRC. When Bitcoin fell, those loans came under pressure, forcing holders to either post more BTC or sell STRC, which further depressed the price.
Le explained that Strategy did not expect such a significant amount of leverage to enter the market, and as a result, the company's buyback strategy was put into action. Strategy began repurchasing STRC in late July, funding these buybacks through sales of its common stock (MSTR) and potentially Bitcoin.
Le emphasized that earlier dividend increases did not lift the price, and increasing the payout would have drained cash and weighed on common shareholders. He noted that buybacks shrink future dividend bills instead, allowing the company to maintain a stronger financial position.