At what Bitcoin price does Microstrategy enter liquidation?
Microstrategy could face liquidation at a Bitcoin price of approximately:
- $3,562, anytime
- $10,447 in 2025
- $18,627 in 2027
Microstrategy's debt situation
According to Microstrategy's 2022 2nd quarter 10-Q SEC filing, the Company holds 129,699 Bitcoin and $2.416 billion in debt.
This debt can be broken down into:
- $205 million in Bitcoin-Back Term Loan with a March 2025 maturity,
- $650 million in 0.75% Senior Convertible Notes with a December 2025 maturity,
- $1,050 million in 0% Senior Convertible Notes with a February 2027 maturity,
- $500 million in 6.125% Senior Secured Notes with a June 2028 standard maturity, but including the possibility of a "springing maturity" of September 2025 and/or November 2026, if the company doesn't have an excess of 130% in liquidity to pay the 2025 and 2028 convertible notes, respectively.
- $11 million in other long-term secured debt, mostly maturing in 2027.
The $205 million loan maturing in 2025 has a maximum loan to value ratio of 50%, meaning that the company must post $410 million in collateral at all times, risking liquidation.
As of May 10th, 2022, according to then CEO Michael Saylor, Microstrategy has 115,109 Bitcoin available to pledge as collateral. This would suggest a liquidation price of $3,562, although he also added that "If the price of #BTC falls below $3,562 the company could post some other collateral," suggesting later that the company's old core business of enterprise services could serve as collateral for this loan.
The spring maturity feature of the 2028 Senior Secured Notes could mean that Microstrategy will have up to $1.355 billion in debt maturing in 2025 and the remaining $1.061 billion maturing in 2027.
Assuming the 129,699 Bitcoins are the only relevant assets that Microstrategy will have in 2025 and 2027, a price of $10,447 would lead to all its Bitcoin being consumed in 2025, and a price of $18,627 would lead to all its Bitcoin being consumed in 2027 (assuming the same Bitcoin price in the 2025 time frames).
Expected $500 million equity raise
On September 9, 2022, Microstrategy issued a Form 8-K report to the SEC announcing it had reached a sales agreement with Cowen and Company, LLC and BTIG, LLC to raise up to $500 million in new Class A common stock.
If successful, and assuming that all $500 million are allocated to additional Bitcoin purchases at the September 9, 2022 price of $21,381.15, an additional 23,385 Bitcoin could be purchased. Added to the existing 129,699 Bitcoin, Microstrategy's portfolio would reach 153,084 Bitcoin, an increase of 18%.
Before the $500 million raise, Microstrategy had 115,109 Bitcoin available to pledge as collateral, according to Saylor. With an additional 23,385 Bitcoin being purchased, the total Bitcoin available for collateral would be 138,494.
The $205 million loan requires $410 million in collateral, suggesting a liquidation price of $2,960, 17% lower than the $3,562 liquidation price before the equity raise.
After the equity raise, assuming the 153,084 Bitcoin are the relevant assets available in 2025 and 2027, the Bitcoin liquidation prices would be $8,851 and $15,782, respectively, versus $10,447 and $18,627, a 15% decrease in liquidation price, in both cases.
- ↑ "Microstrategy Earnings Presentation for Q2 2022" (PDF). September 22, 2022.
- ↑ "Microstrategy Form 10-Q for 2022 Q2" (PDF). September 22, 2022.
- ↑ "Microstrategy Earnings Presentation for Q1 2022 Q2" (PDF). September 22, 2022.
- ↑ twitter.com https://twitter.com/saylor/status/1523996525151539203. Retrieved 2022-09-22. Missing or empty
- ↑ "Microstrategy 8-K form filed on September 2022 Q2" (PDF). September 22, 2022.