CEO of Strategy Fong Le stated that the company underestimated the volume of borrowed funds that flowed into the preferred shares of STRC, leading to a 25% drop in their value. The issuance of STRC is valued at approximately $9.3 billion. The shares pay a 12% annual dividend and were initially intended to trade around the par value of $100. At the end of June, their value dropped to $75, but they are now trading around $99.
Le explained the reasons for the sell-off in an interview with Natalie Brunell, noting that the stable price of STRC attracted investors who borrowed against Bitcoin (BTC) at around 6% to earn the 12% yield of STRC. When the price of Bitcoin fell, borrowers began to face issues: they had to add more Bitcoin or sell STRC, which led to the price decline. "We did not expect such a volume of leverage to enter the system," Le noted. He also mentioned that traders began to buy STRC again at prices ranging from $75 to $90, and he himself purchased some shares.
At the end of June, Strategy developed a plan involving cash reserves, share buyback authorizations, and a strategy for selling Bitcoin if necessary. The buyback of STRC shares began at the end of July. Le emphasized that earlier increases in dividends to 12% did not help raise the share price. A higher payout would also deplete cash reserves and negatively impact common shareholders. In contrast, share buybacks reduce future dividend payments.
Strategy's reserve currently stands at about $5.1 billion, which, according to Le, covers approximately three years of dividends. These funds can only be used for paying dividends on preferred shares and interest on the company's convertible obligations.
Related articles
