Strategy CEO Le Explains 25% STRC Drop
Le says the STRC drop was caused by too much borrowed money around the 12% preferred stock. Strategy then bought shares back and is holding a $5.1 billion reserve.
Key Takeaways
- Strategy CEO Phong Le says the company underestimated the amount of borrowed money flowing into STRC.
- STRC fell about 25% this summer, to around $75 at the end of June, and is now back around $99.
- Strategy bought back STRC using a cash reserve of about $5.1 billion and expects that to cover about three years of dividend payments.
Strategy CEO Phong Le says the company underestimated how much borrowed money would flow into STRC. The $9.3 billion preferred stock lost about a quarter of its value this summer, fell to around $75 (€65) at the end of June, and is now back around $99 (€86).
How Leverage Hit STRC
STRC pays an annual 12% dividend and is designed to trade close to its $100 (€87) face value. According to Le, the steady price actually attracted investors who wanted to borrow against their Bitcoin at about 6% and then buy STRC for the higher yield.
When Bitcoin fell, those loans came under pressure. Investors had to add more Bitcoin or sell STRC, Le said. That extra supply lined up with the drop in the stock price. Le said in a conversation with Natalie Brunell that the company had not expected so much leverage to enter the system. That fits with the broader pressure on Strategy’s capital structure: STRC had already stayed below par, despite buybacks and a higher dividend rate.
Why Strategy Chose Buybacks
Strategy set up a framework with a cash reserve, buyback authorization, and a plan to sell Bitcoin if needed at the end of June. At the end of July, the company started buying STRC back. Le said earlier dividend increases toward 12% had not helped the stock price.
A higher payout would also use up more cash and hurt common shareholders, he said. Buybacks, on the other hand, reduce future dividend costs. Strategy’s dollar reserve now holds about $5.1 billion (€4.4 billion) and, according to Le, is enough for about three years of dividend payments. That money can only be used for preferred dividends and interest on the company’s convertible debt.
What This Says About MSTR
Strategy is funding the recent STRC buybacks through sales of common stock and possibly Bitcoin as well. Le said 95% of his compensation is tied to the price of MSTR and that investors should think in three-year periods, in his view.
He also said institutional investors now own about 30% of STRC, up from 20% before. According to Le, the price can return to $100 (€87) if long-term holders replace investors who were using leverage. STRC’s next dividend date is September 30 for holders of record, with payment scheduled for October 15.
