MicroStrategy’s BTC Investment Rating
Overseas media Blockworks research released an analysis report on the 25th regarding the financial situation of Micro Strategy, which holds the crypto asset (virtual currency) Bitcoin (BTC) the most as a US listed company .
During the “winter era” of cryptocurrencies, the bankruptcies of investment company Three Arrows Capital , lending platform Celsius, and cryptocurrency exchange FTX caused debt problems to spread throughout the industry. Lending giant Genesis Capital is also facing liquidity problems, raising a sense of caution against industry players.
As such, the report focuses on financial strength to meet liquidation lines and margin calls, with a focus on “secured lending,” which is part of the funding source for MicroStrategy’s BTC investment activity.
MicroStrategy began buying bitcoin in August 2020 and holds 130,000 BTC worth approximately ¥290 billion (approximately $2.08 billion) at the time of writing. The average acquisition price is about 4.17 million yen ($30,000), which is about 554 billion yen ($3.98 billion). *All exchange rates are as of November 26, 2010
The company has total long-term debt of ¥329.7 billion ($2.37 billion) related to Bitcoin purchases. Of these, Convertibe Notes have a low interest rate of 0.75%, and unless they are delisted from the NASDAQ or NYSE, they are excluded from risk because there is no risk of being required to repay them in full early.
However, due to the issuance of secured bonds twice to raise funds for BTC purchases, the interest on the debt has increased and is putting pressure on MicroStrategy’s performance.
According to the chart above, between January 1, 2022 and September 30, 2022, MicroStrategy paid approximately ¥3 billion ($22 million) in interest on BTC-related debt. On the other hand, the operating profit of the company’s main business (software) is declining. may need to secure additional liquidity.
MicroStrategy has pledged some of its BTC holdings as collateral for a secured bond, but still has 8,5000 BTC left. It is speculated that they will use these as collateral to make further loans or directly convert them into cash to pay interest. On the other hand, Michael Thaler, who became the chairman of MicroStrategy, is known as the number one supporter of Bitcoin, and has shown a policy not to sell Bitcoin.
loan clearing line
The loan agreement of immediate importance is a 25-year secured loan with Silvergate Bank in March 2022. At that time, it borrowed $205 million with $820 million (19,466 BTC) as collateral. In June 2010, 10,585 BTC was added to the collateral, and as of the end of September 2010, the total amount of collateral was 30,051 BTC (@ $ 480 million converted to $ 16,000).
A margin call will be triggered if the LTV (loan to value) ratio of this contract exceeds 50%. This means that if Bitcoin falls below $13,644, MicroStrategy will be required to add collateral BTC or partially repay the loan to keep the LTV below 25%.
Also important is the 28-year secured bond, which raised $500 million from Jefferies LLC in June 2021, which requires a steep semi-annual interest rate of 6.125% per annum. As of the end of September 2010, 14,890 BTC has been deposited as part of the collateral for this loan, and the liquidation line is relatively far from the BTC price of about 500,000 yen ($3,561), but some requirements have been cleared. If you do not, there is a provision that the maturity will be brought forward.
Overall, given the relatively long distance to the liquidation line and the liquidity gap, Blockworks research concluded that “microstrategy does not pose a direct risk to the Bitcoin market for the foreseeable future.” concluded. However, he added that “the company’s operating results and financial condition may be significantly adversely affected,” taking into account annual interest payments of more than 3 billion yen.