Ok, Bitcoiners...here's a quick 101 on convertible bonds from a former evil banker
- A convert bond starts as a bond then "converts" to equity
- Pay lower interest to investors b/c it can be equity later - its cheap now (especially now) but you'll pay later w/ equity dilution
- A convert bond starts as a bond then "converts" to equity
- Pay lower interest to investors b/c it can be equity later - its cheap now (especially now) but you'll pay later w/ equity dilution
- Usually there's bad credit or expect high growth
- Why do investors like it? Protection. If the stock ⬇️,you'll still have the value of your bond. If the stock ⬆️,then you convert. BUT....most converts are "callable" aka they'll force a convert if price is > than $ of the bond
- Why do investors like it? Protection. If the stock ⬇️,you'll still have the value of your bond. If the stock ⬆️,then you convert. BUT....most converts are "callable" aka they'll force a convert if price is > than $ of the bond
- Basically it is downside protection w/ a profit cap vs. owning straight equity
- Tesla is famous for this. The street thought Elon was 👏absolutely nuts👏 for insisting on raising convert after convert as he believed in his growth (they've recently stfu for some reason...)
- Tesla is famous for this. The street thought Elon was 👏absolutely nuts👏 for insisting on raising convert after convert as he believed in his growth (they've recently stfu for some reason...)
- Turning to MicroStrategy...they have essentially no debt. No RCF or term loan. Their biggest liability are leases
- They're consistently made stock repurchases - ~$530M in FY19 and already approved ~$800M to repurchase by April 2023. They're prepped for dilution
- They're consistently made stock repurchases - ~$530M in FY19 and already approved ~$800M to repurchase by April 2023. They're prepped for dilution
TL;DR: Rates are super low & a convert fits MSTR debt profile. BUT this is a massive bet on Bitcoin and aligns the company's future with it. If BTC continues to pump, the stock price will ⬆️and they're👌. If not...don't ask Saylor for an xmas gift, he's got other sh*t to pay off.
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