Strive’s preferred equity blueprint for Strategy’s $8 billion convertible debt overhang

Strive (ASST), a bitcoin treasury and asset management company, is using perpetual preferred equity to retire convertible debt and restructure its balance sheet, a method that could offer a template for Strategy (MSTR) in the future.

On Thursday, the company priced a follow-on offering of its Variable Rate Series A Perpetual Preferred Stock SATA (SATA), at $90 per share. The transaction was upsized beyond the initially announced $150 million to allow for the issuance of up to 2.25 million SATA shares in aggregate, combining public issuance with privately negotiated debt exchanges.

Strive said it intends to use the net proceeds to pay down Semler Scientific’s 4.25% Convertible Senior Notes due 2030, which are guaranteed by Strive. The company expects to enter exchange agreements with certain noteholders representing $90 million in aggregate principal.

Under those agreements, approximately 930,000 newly issued SATA shares will be exchanged directly for the convertibles. The remaining net proceeds from the offering, together with cash on hand and potential proceeds from terminating existing capped call transactions, are expected to be used to redeem or repurchase any remaining Semler convertibles and repay borrowings under Semler Scientific’s Coinbase Credit facility, and fund additional bitcoin purchases.

Rather than refinancing or rolling dated debt, Strive is converting fixed maturity obligations into perpetual preferreds. SATA carries a variable dividend currently set at 12.25% and has no maturity or conversion feature. Because the preferred shares are treated as equity rather than debt, this improves reported leverage metrics and flexibility. While bondholders effectively give up equity conversion optionality in return for a higher yielding, perpetual, and fully liquid instrument which also has seniority over common stock.

This could be a possible avenue that Strategy can deploy; it has roughly $8.3 billion of outstanding convertible notes, while its perpetual preferred securities have recently surpassed convertibles in notional value.

Still several years from maturity, the largest portion of the convertible notes remains the $3 billion tranche with a June 2, 2028 put date and a $672.40 conversion price, roughly 300% above the current share price near $160.

The use of preferred equity to retire or exchange such debt could offer executive chairman Michael Saylor an additional avenue to reduce future maturity risk.