Strategy (MSTR.US) Preferred Stock STRC Nears $100 Par Value: Financing Tool Becomes a "Bleed Point," Company Buys Its Own to Prop Up the Market

Strategy (MSTR.US) Preferred Stock STRC Nears $100 Par Value: Financing Tool Becomes a "Bleed Point," Company Buys Its Own to Prop Up the Market Strategy's (MSTR.US) perpetual preferred stock STRC (Stretch) has rebounded to as high as $99 after a brutal sell-off, just a stone's throw from its $100 par value. But the biggest buyer driving the rebound is the company itself. Strategy launched this product with the aim of extending its Bitcoin financing model beyond highly volatile common stock. Getting STRC back to its $100 par value is key to Chairman Michael Saylor proving that this "digital credit" product can be a durable source of capital, rather than something that only works when market enthusiasm for Strategy and Bitcoin is running high. That logic was tested in June. At the time, Strategy sold a small amount of Bitcoin, breaking Saylor's long-held "never sell Bitcoin" mantra. The ensuing sell-off sent the perpetual security down to nearly $70, undermining the narrative that "STRC is a more stable way to participate in Saylor's leveraged Bitcoin accumulation strategy." After weeks of large-scale buybacks, Stretch has rebounded to as high as $99. Company Buybacks Are Massive Data shows that from July 20 to September 13, Strategy repurchased approximately 9.96 million STRC shares, spending about $950 million. That equates to roughly 18% of STRC's total trading volume over the same period. In the most recently disclosed week, Strategy's buybacks accounted for nearly 28% of total trading volume. Infrastructure Capital Advisors CEO Jay Hatfield said: "There are no significant incremental institutional buyers." He said his firm bought STRC near the June lows and sold most of its position at highs above $90. Buybacks on this scale complicate the STRC recovery story. Strategy built its preferred stock system partly to reduce reliance on issuing common stock. But after the market turned, the company ultimately had to sell common stock to prop up the preferred. Over the past year, the company's common stock has fallen about 60%. Since July 20, about $765 million (roughly 80% of total buybacks) of the funds Strategy used to repurchase STRC came from common stock sales. Another approximately $161 million came from Bitcoin sales. In other words, this financing arrangement was originally designed to reduce reliance on common stock, but now it has reversedit depends on selling common stock to support itself. Financing Logic Reversed: Sell Common Stock, Buy STRC If STRC can return to par value without Strategy acting as the primary buyer backstopping it, the company could once again issue preferred stock to finance Bitcoin purchases while reducing reliance on common stock. But whether that can happen remains uncertain. Two Prime founder and CEO Alexander Blume said: "Now they're selling Strategy common stock to raise cash to buy STRC, not to buy Bitcoin. For those who bought the stock to 'amplify' Bitcoin exposure, this doesn't generate returns in the short term, and it's not what they want." This is the exact opposite of the logic Strategy relied on to rise. When the common stock trades at a high premium to the value of its Bitcoin holdings, the company can issue common stock, use the proceeds to buy Bitcoin, and potentially increase Bitcoin held per share, which helps sustain the premium and makes further stock issuance more attractive. Preferred stock was supposed to make this flywheel spin faster. But for STRC to become a sustainable source of financing, the premise is that investors are willing to buy at $100 or above. That is the bottom line for new issuance not to dilute shareholders' equity. Wave Digital Assets head of international portfolio management Rajiv Sawhney said: "The simplest and most straightforward explanation is that STRC only functions as a product if it trades at par. If the price is $71, it's worthless as a financing tool and is effectively a toxic asset." "The price is the product itself," he said. The Economics of Buybacks: Retiring at a Discount, Resetting the Coupon This also explains why buybacks can make economic sense. Buying back and retiring preferred stock with a $100 par value at below par is equivalent to eliminating a liability that requires $12 per year in dividends at a cost below par. Sawhney said buying back at $85 to $90 is a very attractive balance sheet trade; if STRC returns to par and the dividend rate can eventually be lowered, it could help Strategy reduce future financing costs. He said buybacks are "spending money to reset the coupon." Strategy has also strengthened its liquidity buffer and doubled its digital credit securities repurchase authorization to $2 billion. Can STRC Stand on Its Own Without Company Buybacks? The question is whether STRC can continue to stabilize near par without relying on large-scale company buybacks to prop it up. "There is no objective reason why STRC would trade at $100," Blume said, adding that it remains to be proven whether Strategy can close the gap and thereby reactivate the "at-the-market (ATM) equity issuance" machine. Keeping STRC near par may require retail investors to return. But they have already left crypto and moved on to chase rallies in AI, tokenized stocks, and commodities. Hatfield said: "It needs retail participation, because the institutional preferred stock market is already stuffed with this kind of product." If that doesn't happen, the new financing logic will be entirely different from the old model: sell common stock, use the cash to prop up the preferred, and then hope the preferred eventually recovers enough to become a tool for raising money to buy Bitcoin.