The crypto market is going through carnage since last year but among this bearish market one bull is keeping the market on good terms and that is Michael Saylor and his MicroStrategy. In a market where bigger whales and companies like Tesla are selling their Bitcoins, MicroStrategy is buying more and more and at the time of writing, it has more than 130k bitcoin which has worth $2.08B, considering the current price of Bitcoin.
MicroStrategy is not only keeping Bitcoin on its balance sheet but on a debt too and this creates more speculation about the future of this company. Many top crypto investors and experts are worried about MicroStrategy’s debt structuring and their business. Let’s dig deeper into this debt profile.
Total debt Profile of MicroStrategy
According to the statistics, at the end of 30 September 2022 (quarter end), MicroStrategy held more than $2.73B of total debt. These debts were in the form of 2025 and 2027 Convertible Notes, 2028 Secured Notes, 2025 Secured Term Loans, and Other Long-term Secured Debt.
2025 and 2027 Convertible Notes
The 2025 convertible notes, worth $650M, were completed on 11 December 2020. The interest rate of these convertible notes is 0.75% and it has to be paid semiannually on June 15th and December 15th of each year. These notes cannot be convert into share until June 15th, 2025. However, if something changes in the structure of the company, MicroStrategy will repay all the loans before the due time if demanded.
Additionally, the 2027 convertible notes are worth $1.05B on 19th Feb 2021, and these notes cannot be converted into shares till Aug 2026. The changing of notes into shares would happen if the company undergoes a “fundamental change” as described in the Indenture.
2025 Secured Term Loan
On the 23rd of March 2022, MicroStrategy took a $205M secured loan from Silvergate which would mature on the 23rd of March 2025. It has a 7.19% annual interest rate. Additionally, the loan is collateralized with 19,466 BTC means that the company must repay the loan in terms of BTC if the loan-to-value (LTC) ratio is reduced to 25% or less than 25%. Furthermore, there has been a $5M collateralized cash reserve account for this loan.
Long-term Debt Health
Accordingly, MicroStrategy has more than 130k BTC at its disposal, worth $3.98B if sold on 30k, but not all of them belong to the company. It is because 30,051 BTC are held as collateral for the 2025 Secured Term Loan with Silvergate. Considering the BTC rate of $16k, these BTC are worth $480M. Additionally, the company has used 14,980 BTC as collateral for 2028 Senior Secured Notes, leaving the company with only 85,059 liquid BTC.
MicroStrategy has taken a lot of loans and they have collateralized some part of their BTC quota but it is not the real concern. The real concern is the company’s ability to service the interest on its outstanding debt. At the end of the quarter on 30th September 2022, the company has managed to incur over $38M of interest expenses which is a clear decline in profitability. Taking the interest rate into account, it would be very difficult for the company to continue with the loans.
As concerns loom over the company’s business, future, and BTC holding ability, the company still holds $67M of cash and cash equivalents alongside 85k BTC on the balance sheet. However, if the current market trend continued for a while, this would not enough for the company to pay the loans over the coming years. The company’s software business needs to improve profitability. In the end, one thing should be noted: “Microstrategy poses no immediate risk to the Bitcoin market.”