MicroStrategy Boosts Convertible Debt Offering by $200 Million to Acquire Additional Bitcoin

On Friday, Bitcoin development firm MicroStrategy announced an increase in its convertible note offering by $200 million, raising the total to $700 million. The pricing for these convertible bonds was set at an annual rate of 2.25%, which is higher than the 0.875% offered in March but still below the Federal Reserve’s current 5.25% benchmark rate.

MicroStrategy also provided an option for initial purchasers to buy up to an additional $100 million in notes within a 13-day period starting from the issue date. The offering is expected to close on June 17, with the notes maturing on June 15, 2032. The proceeds will be used to acquire more Bitcoin and for general corporate purposes.

A convertible bond is a debt instrument that offers a modest interest rate, typically below the market rate, and includes a call option to convert the investment into company shares at a predetermined rate, allowing investors to benefit if the stock value rises significantly.

The new offering allows investors to convert their funds at an effective rate of $2,043.32 per share, a 35% premium over the current price. If converted, this would result in dilution for existing MSTR shareholders.

MicroStrategy estimates net proceeds of approximately $687.8 million from the sale, or $786.0 million if the option to purchase additional notes is fully exercised.

On Thursday, MicroStrategy announced the redemption of its first round of convertible notes, issued in Decemb

er 2020 for $650 million to buy Bitcoin. These note holders have until July 11 to convert their notes at a rate of $397.77 per share, potentially diluting up to 1.6 million MSTR shares.

Some investors believe the worst of the dilution is over for MicroStrategy. The future conversions of all remaining bonds would result in less dilution than the initial offering.

MicroStrategy currently has 15.77 million shares outstanding, with a three-month average daily volume of 1.78 million shares, according to Yahoo Finance. Despite potential selloffs due to dilution, some investors remain optimistic about MicroStrategy's future.