Strategy buys back $193.1 million of STRC, lifts preferred repurchase cap to $3 billion

Strategy, formerly MicroStrategy, spent nearly nine times as much last week buying back its own preferred stock as it did buying bitcoin. In a Form 8-K filed with the U.S. Securities and Exchange Commission on Oct. 19, the company said it bought 267 bitcoin for $22.1 million between Oct. 12 and Oct. 18 and repurchased 1,938,780 shares of its variable rate perpetual preferred stock, STRC, for $193.1 million. Its board also raised the authorization for repurchasing preferred stock to $3 billion from $2 billion.

$22.1 million for bitcoin, $193.1 million for preferred stock

The bitcoin purchases were funded with $22.0 million in net proceeds from selling 140,872 shares of class A common stock (MSTR) through its at-the-market (ATM) program, which sells shares gradually at market prices, plus $0.1 million of USD Cash. The average purchase price, including fees, was $82,900. That brought total holdings to 848,517 BTC, acquired for an aggregate $64.02 billion at an average of $75,446 per bitcoin. In the previous week, Oct. 5 to Oct. 11, Strategy bought 250 bitcoin at an average of $86,194.

The entire $193.1 million STRC repurchase was paid from USD Cash, the company's general-purpose cash. It followed buybacks of $73.7 million from Oct. 1 to Oct. 4 and $192.4 million from Oct. 5 to Oct. 11, bringing fourth-quarter STRC repurchases to $459.2 million. Over the same stretch, Strategy bought 851 bitcoin for $72.3 million. There were no repurchases of STRF, STRK, STRD or common stock this week, and no new preferred shares were sold through the ATM.

Buyback cap triples in under four months

Strategy created the preferred repurchase program with a $1 billion cap on June 29, when it introduced a "Digital Credit Capital Framework" for its preferred securities. At the time, the company said STRC would be the initial priority and that it would buy if management determined repurchases were accretive and would strengthen its capital structure. The cap was raised to $2 billion on Sept. 8 and now stands at $3 billion.

The cap includes repurchases already made under the program. As of Oct. 18, $1.16 billion remained available, meaning $1.84 billion has been used since the program began. Just before the increase, $161.7 million remained, not enough to repeat a buyback of this week's size. The separate $1 billion authorization for repurchasing MSTR shares remains untouched.

STRC is a preferred stock whose dividend rate the company sets monthly, with dividends calculated on a stated amount of $100 per share. According to Yahoo Finance, STRC closed at $97.72 on Oct. 16, down from $99.90 on Oct. 13, and traded at $98.15 early in U.S. trading on Oct. 19. The company has said it will recommend that the board keep STRC's annual dividend rate at 12% until the shares show sustained trading near $100.

USD Cash falls $386.1 million in two weeks

Strategy keeps its dollars in two pools: a USD Reserve to pay preferred dividends and interest, and USD Cash for broader uses such as buying bitcoin and repurchases. USD Cash fell from $833.4 million on Oct. 4 to $640.5 million on Oct. 11 and $447.3 million on Oct. 18. The USD Reserve went from $4.88 billion to $4.83 billion over the same period, and $45.5 million of it was used for preferred dividends this week.

Under company policy, the USD Reserve may be used only for dividends and interest, and any other use requires board authorization. The company must also keep it at no less than 12 months of expected preferred dividends and interest. MSTR shares closed at $136.83 on Oct. 16, down 9.6% on the day, and traded at $139.39 early in U.S. trading on Oct. 19.

Bitcoin trades $400 below Strategy's latest average cost

Bitcoin traded at $82,496 on Binance at 10:30 p.m. KST on Oct. 19, about $400 below Strategy's average purchase price this week and about $7,050 above its overall average cost.

At the same time, bitcoin traded at 110,701,000 won on Upbit's Korean won market and 110,702,000 won on Bithumb. The kimchi premium (the gap between prices on Korean exchanges and global markets) was about 0.6% on Upbit.