Perpetual Preferred Shares: Strive's Debt Solution and Strategy's $8.3 Billion Challenge

Source: BlockMedia Original Title: 영구 우선주로 전환사채 상환…스트라이브의 실험, 세일러의 83억달러 부채 해법 될까 Original Link: https://www.blockmedia.co.kr/archives/1035900 Bitcoin financial strategy firm Strive is presenting a new solution for long-term debt management by using perpetual preferred shares to redeem convertible bonds. Market attention is turning to whether Strategy (MSTR), which has already issued large-scale convertible bonds, can apply the same approach.

Strive confirmed on January 25th (local time) the pricing of a follow-on offering of floating-rate Series A perpetual preferred shares (SATA) at $90 per share. The originally planned $150 million offering was expanded to reflect demand, with a structure allowing issuance of up to 2.25 million shares including the offering and private exchanges.

The raised funds will be used to redeem Semler Scientific’s 2030-maturity 4.25% convertible bonds, for which Strive provides guarantees. The company has entered into exchange agreements with some investors holding approximately $90 million in convertible bonds, planning to directly exchange approximately 930,000 new SATA preferred shares.

The key aspect of this transaction is that the convertible bonds were not simply refinanced or extended in maturity, but converted into capital with no maturity date at all. SATA preferred shares currently pay floating dividends at approximately 12.25% annually but have no redemption maturity or common stock conversion conditions. Being classified as equity rather than debt on the balance sheet improves leverage metrics and eliminates concerns about large redemption obligations in the future.

However, this structure does not involve the company unilaterally changing the terms of existing convertible bonds. Already-issued convertible bonds are fixed-contract products that issuers cannot arbitrarily restructure. The approach Strive used was to propose an exchange to perpetual preferred shares to convertible bond holders, with only those investors who agreed participating in the voluntary exchange.

This presents implications for Strategy. Strategy currently holds approximately $8.3 billion in convertible bonds. The largest portion, $3 billion, has a put option set for June 2, 2028, with a conversion price of $672.40. With the current stock price hovering around $160, the likelihood of stock conversion is significantly diminished.

When conversion prices are significantly higher than stock prices, convertible bonds essentially resemble bonds with maturity redemption obligations. In such cases, if the issuer presents perpetual preferred shares with high dividends, it could become an attractive option for some investors compared to maintaining bonds with dim conversion prospects.

The Strive case demonstrates that this structure is not merely theoretical but actually executable. Of course, it is difficult to exchange all convertible bonds at once, and investor consent is a prerequisite. The increase in dividend burdens must also be considered.

Nevertheless, the exchange method utilizing perpetual preferred shares is evaluated as a means to mitigate the risk of concentrated large redemption obligations at specific points in time. Strive’s experiment suggests that Strategy Chairman Michael Saylor now has one realistic option for managing long-term leverage.