Thread by @jdorman81

Hearing manymisconceptions about the $MSTR secured bond deal, what it means for $BTC, and many completely false narratives about "Will Saylor be forced to liquidate his BTC?"

Here's our interpretation of the bond covenants from the prospectus (h/t @MikeDershewitz )

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1) Collateral
Even though $MSTR says they intend to buy #Bitcoin, there is no promise or requirement to buy $BTC. This bond is a standard secured bond ($500MM) which is secured by all corp assets other than the first 92K BTC ($3.4bn @$37K) already purchased - that was carved out

The $500MM raised MAY be used to buy $BTC (which $MSTR said they will do), but the investing public should hold them to it if they don't. They are under no obligation to buy #Bitcoin.

There are loose covenants on the cash collateral if $MSTR doesn't buy #Bitcoin. Even if they do buy BTC, there is nothing requiring them to hold the $BTC besides public disclosure. They are moving the old 92k BTC to an unrestricted subsidiary which is excluded from collateral.

2) Bond Covenants
- No covenants -- no one can force a sale of $BTC
- $MSTR is allowed to raise more debt at the unrestricted BTC co which would be structurally senior to the $3.4B (so original convertible bond holders are potentially getting primed).

The definition of consolidated EBITDA includes any non-cash income. We assume this means that IF #Bitcoin rises, then $MSTR is allowed via covenants to:

a) Issue pari passu secured debt up to a 3:1 ratio. After the $500M raise, secured levg is currently 5:1. So if $MSTR generates just $70M of $BTC paper gains on their massive stockpile, they can then issue more pari passu debt. There is no equivalent test if BTC falls.

So basically, if $BTC goes up, $MSTR EBITDA goes up, which means their leverage ratio goes down, which means they can potentially issue more debt to buy more BTC -- if BTC goes down, nothing happens.

Good for MSTR, maybe good for $BTC, bad for bondholders

b) Restricted payments up to 2.75x on total leverage ratio. $MSTR has $2.2B of debt today and $100M of EBITDA. So this is less likely than the pari debt but worth noting (EBITDA would have to go up to like $800mm before they can pay themselves a dividend)

Will this be a blueprint for other companies?
- Probably not today. It's still a use of balance sheet cash and $BTC is volatile. In this case $MSTR is using this BTC for some balance sheet trickery and trying to lever up, but leverage isn't lacking for most companies these days.

Bottom line: This $MSTR secured bond is just a standard secured bond that has very little to do with $BTC.

Bondholders basically sold a call option (for 6.125% yield) and a put option... MSTR walks away with a ton of upside optionality, and it has a marginal impact on #Bitcoin

But any fears of $MSTR being a forced seller of $BTC, or being "liquidated" is a complete farce and a misunderstanding of how bond covenants work.

If you use this data point at all for $BTC analysis, you're basically just saying "I trust Saylor to buy more and to never sell"