Strategy Inc's Stretch preferred stock (STRC) continued its decline on Thursday, trading at $86.54 by midday in New York after hitting a session low of $82.61. The sustained weakness below its $100 stated value is raising concerns about the company's ability to finance further bitcoin acquisitions at favorable terms.
STRC is a key funding tool for Strategy, allowing the company to raise capital for bitcoin purchases beyond selling common stock. However, the latest weekly filing showed no STRC sales, while Strategy sold $209 million in common shares and acquired 1,587 bitcoin in the week through June 14. The company now holds 846,842 bitcoin as of that date.
The slide in STRC is problematic because the preferred shares are designed to track close to $100. While Strategy can adjust the dividend to manage demand, trading below $90 signals a deeper issue. Investors are questioning whether the company can continue to secure cheap funding for bitcoin, or if the cost will increasingly burden common shareholders.
STRC carries an 11.50% annual dividend, paid semi-monthly, with a notional value of about $10.49 billion. The dividend rate resets monthly to encourage trading near $100. However, the current weakness could trigger an increase: Strategy's framework suggests management will likely recommend raising the dividend by at least 50 basis points if the average trading price in June falls below $95. A basis point is one-hundredth of a percentage point.
Investors are watching Strategy's upcoming cash obligations. According to Investors Business Daily, the company faces approximately $230 million in interest and dividend payments before the end of the month. To meet these, Strategy may need to issue more common shares, which would dilute existing equity holders. Alternatively, if STRC weakness persists, the dividend rate could jump to at least 11.75%.
FT Alphaville noted that while STRC is not a typical 'death spiral' convertible, its decline can still lead to higher payout costs, more equity issuance, or even bitcoin sales. Indeed, Strategy disclosed in a June 1 filing that it sold 32 bitcoin in late May for $2.5 million to fund preferred-stock distributions. The company had $900 million in U.S. dollar reserves at the end of May, rising to $1.1 billion by June 14.
Some investors are turning to alternatives. CoinDesk reported that Strive's SATA preferred security, which trades near $100, offers a higher yield and pays daily dividends, with no debt on its balance sheet. This shift highlights growing competition for yield-focused capital.
Bearish bets are not guaranteed. A bitcoin price recovery, renewed demand for yield, or a convincing reserve raise could help STRC return toward par. However, if bitcoin remains soft and STRC continues trading below $100, Strategy faces a difficult choice: offer richer terms on preferreds, issue more common shares, or dip into its substantial bitcoin holdings.
