MicroStrategy buys Bitcoin by issuing $1.6 billion in junk bonds

Software company MicroStrategy raised $1.6 billion through the issuance of junk bonds-four times the amount originally sought.

Earlier this week, the company Announce It will issue a junk bond worth 400 million U.S. dollars through a private placement in order to use the proceeds to buy Bitcoin (Bitcoin).

Junk bonds are bonds issued by companies that do not have an investment-grade credit rating, and usually provide investors with higher returns while taking on higher risks. The floating rate of return on bonds is between 6.125% and 6.25%, which exceeds the rate of return provided by Treasury bonds.

“These notes will be fully and unconditionally guaranteed jointly and individually by MicroStrategy’s wholly-owned subsidiary MicroStrategy Services Corporation and certain subsidiaries of MicroStrategy that may be established or acquired after the issuance ends on the basis of priority guarantees,” said MicroStrategy Announcement.

A day later, the company Announce It increased its bond issuance to US$500 million, after which it was overwhelmed by orders worth US$1.6 billion.

MicroStrategy currently Hold the most bitcoins On the balance sheets of all public companies, its valuation is approximately US$3.2 billion-more than twice the value of Bitcoin held by Tesla (US$1.4 billion).

MicroStrategy’s stock price has soared along with the rise in Bitcoin prices for most of 2020 and 2021. But holding Bitcoin on the balance sheet was not enough to prevent MicroStrategy’s stock from falling, which eventually appeared when the cryptocurrency market fell. Since Bitcoin peaked in early April, MicroStrategy’s stock price has fallen 45%.

MicroStrategy also revealed that it had established a new subsidiary to hold its existing 92,079 bitcoins, called MacroStrategy LLC.

Responses to news on social media are usually varied. Bitcoin proponents celebrated the news and pointed out that there was a significant excess of demand for MicroStrategy bonds.

Crypto skeptic Peter Schiff questioned the wisdom of buying assets that have been unstable throughout history. Schiff asked how the sudden drop in bitcoin prices would affect MicroStrategy’s business operations.

Let’s wait and see.

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