Libre Blockchain

2021-06-12 10:30:58 Doing the Quick Math on MS Holdings as of May 18th, 2021

Bringing that quote back into focus from the May 18th, Form 8-K ; "As of May 18, 2021, the Company holds approximately 92,079 bitcoins that were acquired at an aggregate purchase price of $2.251 billion and an average purchase price of approximately $24,450 per bitcoin, inclusive of fees and expenses."

Let's do the math on what those holdings are worth now. According to CoinGecko, the price / BTC = $35,265 as this is being written.

Some quick math (~$35.2k*92079) gives us $3,247,165,935 ($3.24 billion).

If we substract the $500M from the $2.2B outstanding debt total quoted by Moody's (look above if you don't know), we wind up with $1.7B.

Subtract $1.7B from $3.24B, we end up with $1,547,165,935 ($1.54B). This is lower than the total purchase price for the Bitcoin (which was $2.2B as announced in the Form 8-K published on May 18th, 2021).

These notes have a long time before maturity, of course, and this would be assuming the price of Bitcoin didn't move north (also assumes that MicroStrategy would exclusively liquidate down Bitcoin in lieu of shares on the market for cash flow [which would be preferable when considering such a sell-off of their shares would result in steep price depreciation on the stock]).

Nonetheless, if things all had to be settled up at that moment in time, it seems that MS would be underwater (perhaps dangerously so when considering the price of $BTC touched down around $30k just a couple days ago ; could've gotten very wild for them). Open / Comment

2021-06-12 10:30:58 Relevant SEC Filings & Associated Information Contained Within

1. Form 8-K (June 8th, 2021) - Announcing $500M total raised from the junk bond offering. "The Company estimates that the net proceeds of the offering will be approximately $488 million, after deducting initial purchaser discounts and commissions and estimated offering expenses payable by the Company. The Company intends to use the net proceeds from the sale of the notes to acquire additional bitcoin."

2. Form 8-K (June 7th, 2021) - In this form, MicroStrategy reveals an additional $284.5M in impairment losses, "related to its bitcoin for the three months ending June 30, 2021".

3. Form 8-K (May 18th, 2021) - This is the form 8-K where we get an updated total for the total Bitcoin that MicroStrategy has/had on hand on that date (along with the overall avg. price per BTC paid). "As of May 18, 2021, the Company holds approximately 92,079 bitcoins that were acquired at an aggregate purchase price of $2.251 billion and an average purchase price of approximately $24,450 per bitcoin, inclusive of fees and expenses."

We're going to do some quick math on those Bitcoin holdings (note that this doesn't include whatever additional purchases that they're planning on making because they have yet to release that yet; they just finished that $500M fundraise sale). Open / Comment

2021-06-12 10:30:58 Moody's Most Recent Publication (following the $100M Upgrade)

Probably should've did this one second - but there's some useful information in here, so let's go ahead and extract it.

Link = https://www.moodys.com/research/Moodys-says-MicroStrategys-100-million-upsize-to-proposed-notes-is--PR_448334 (published June 9th, 2021).

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Quick Notes

- Moody's doesn't change the credit rating given to the senior secured note issuance by MS, but it does state that the decision to leverage even more debt to purchase a "highly volatile" (their words; but they're right) asset like Bitcoin presents greater risk - but not necessarily enough to alter the credit rating for the bonds.

- "The additional debt is credit negative because it further limits financial flexibility and leaves little cushion within the rating in the event of an unexpected downturn or future debt raises."

- "While the incremental debt is expected to have only marginal effects on fundamental credit metrics at this time, it serves to emphasize the highly risky financial policy of raising debt to purchase Bitcoin as well as management's commitment to the strategy, which increases the refinancing risk of balance sheet debt."

The publication also informs us that MS's total outstanding debt is now at $2.2B overall ; "MicroStrategy is planning to upsize its recently announced senior secured notes by $100 million to a total of $500 million (total gross debt outstanding would be increased to $2.2 billion)."

Some interesting insights for sure.

Before we go to that initial Moody's report, going to share a few links that contain some relevant information for MicroStrategy (if you want to get it straight from the horse's mouth vs. articles / publications that color the narrative for whatever reason). Open / Comment

2021-06-12 10:30:58 3. MS announced another $284.5M in "impairment losses" due to the crash (among other factors).

4. This is debt that's going to have to be outright paid back (not converted for stock at some point in time; so things are getting a bit more serious /// MS is going to have to hope that the ROI on their investment is fairly significant at this point.

We're going to go over to Moody's and review their most recent downgraded rating of these senior secured bonds (i.e., "junk bonds"; 'sub-prime'), that were issued by MS recently and see what that means in objective terms for the company. Open / Comment

2021-06-12 10:30:58 Open / Comment

2021-06-12 10:30:58 Most Recent Finance Round for MS is a Little More Dark

Rather than issuing convertible notes, MS is now borrowing via "junk bonds" (we'll get into that in a second).

Terms of the Borrow

1. $500M in total that they borrowed through these junk bonds

2. Bonds have a 7-year yield, pay 6.125% interest (annual); that amounts to about $758M (the total interest is usually not paid until maturity with these bonds) Open / Comment

2021-06-12 10:30:08 From their 8-K filing; if you want to look at all of MS's SEC filings (which provide detailed information about their various securities purchases, executive structure re-shuffling, etc., then visit - https://sec.report/Ticker/MSTR) Open / Comment

2021-06-12 10:30:08 Most Questionable Decision by MicroStrategy

Their decision to purchase 19,452 at $52,765 / BTC (announced here: https://www.microstrategy.com/en/investor-relations/press/microstrategy-acquires-additional-19452-bitcoins-for-1-026-billion_02-24-2021)

This was a $1.02B purchase total (this is what that $1B in "debt financing went to).

Here's where the second layer of losses comes in for MicroStrategy because, as we all know, Bitcoin slid off a cliff later on this year (in May).

Right now its trading around $35k (generous bump since its decreased recently).

That means that those holdings are now worth $680M, representing a pure loss of approx. $340M.

This doesn't consider the fact that MS made some other questionable purchases (such as $15M in BTC at $59k [ouch]).

https://sec.report/Document/0001193125-21-105625/ Open / Comment

2021-06-12 10:30:08 Price Floor for Investors Limiting Losses

You may have missed this clause that was in the press release, but there is a price floor (as typical with convertible notes of this nature).

Specifically, it states, "Holders of notes may require MicroStrategy to repurchase their notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the notes at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid special interest to, but excluding, the date of repurchase."

Typically, convertible notes must be purchased at par price by the issuer if the notes are not converted by the maturity date (Feb. 2027 in this case).

This is an option that allows investors in the convertible notes to salvage losses in the instance the notes fall below the par price (in this case, that's $955).

Doing Some Quick Math

MS said that they issued $1.05B in convertible notes.

1.) 1.05B/1000 = 1,050,000 (diff tranches of $1,000)

2.) 1050000*.6981 (stock per $1k of convert. notes) = 733k stock (approx. issued)

Currently the price per share for MS = $510 ; that's about $445 below par price.

If these convertible notes were to mature right now, then MS would be on the hook for -$326M / $700M (overall out of pocket).

But that's not considering the additional $600M in debt financing that MS also did this year.

Before we get to that though, we're going to look at the crazy losses that MS took off of their 19k BTC purchase at $52k. Open / Comment

2021-06-12 10:30:08 Way it Works

Based on the math that we see above, if you're an investor, you're hoping that the price of MS shares increase >$1400 (par price + conversion premium [50%] that the investors purchased the convertible notes at).

In MS stating that they would be using all of the funds to purchase Bitcoin, they essentially made their company an investment vehicle for Bitcoin (indirectly).

Assuming the Price Were to Go Through the Roof

Let's assume you're an investor and you purchased $10k in convertible notes.

That would entitle you to 6.981 shares of common stock A of MS.

Now let's assume that the share price goes up to $3k, for instance. At that point, your convertible notes are worth $20.943k (you doubled up your money pretty much).

Limited Upside

Remember the out clause that MS put in that press release announcing the terms of the convertible note issuance.

Here's the wordy ass sentence: "Subject to certain conditions, on or after February 20, 2024, MicroStrategy may redeem for cash all or a portion of the notes at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date, if the last reported sale price of MicroStrategy’s class A common stock has been at least 130% of the conversion price then in effect for a specified period of time ending on the trading day immediately before the date the notice of redemption is sent."

What this essentially means is that MS can exercise the option to buy back the stocks from the shareholders (for their spot price, cash), if the price appreciates by 130% or more above the conversion rate ($1432/share), then MS can essentially simply cash out that convertible note vs. exchanging shares in return.

That price is approximately $3293/share

This limits the total upside that shareholders can hope to gain from this move (since MS will def make that call if the share price were to ever appreciate that much) . Open / Comment