Re: MSTR-The Tail Wagging The BTC Dog?

Update on Q1'22 results.

MSTR just reported Q1'22. Here’s an updated capital structure:

Debt:

Silvergate SOFR+3.7% due 3/23/25 -- $205 mm

Senior Secured 6.125% due 6/15/28 -- $500 mm

Convert 0.75% due 12/15/25 -- $650 mm

Convert 0% due 2/15/27 -- $1050 mm

TEV:

Total Debt -- $2405 mm
Mkt Cap -- $3880 mm (as of 5/3/22)

$6285 mm

I'm deliberating excluding $93 mm cash because he intends to use it to buy more BTC.

Current BTC Holdings -- 129218 Current BTC Value @ $37600 -- $4860

BTC represents ~77% of MSTR's TEV and 125% of its equity mkt cap.

Meanwhile, Interest Expense has more than 4x'd to about $44 mm annualized -- BEFORE SOFR ratcheting inevitably higher (latest secured debt raise is floating).

My back-of-the-envelope indicates that Interest Expense now eats up >40% of EBITDA. After capex, FCF is down from ~$80 mm to about ~$35 mm which doesn't leave a lot of room for execution error in a slowing growth environment, imho.

As I've mentioned many times through my MSTR threads, Saylor has the luxury of TIME given that the first maturity isn't until 3/23/25.

However, he now has $700 mm of SECURED INTEREST BEARING (some of which is FLOATING) DEBT that is eating up his FCF.

If business conditions deteriorate and he trips a covenant or misses his interest payments, ALL MATURITIES ACCELERATE IN BANKRUPTCY.

Rather than thinking about $BTC driving $MSTR's fortunes, I think it might be the other way around.

Given that much of $BTC's valuation framework rests upon a dubious "stock-to-flow" framework of artificially inelastic supply, one MUST worry about the possibility of a concentrated whale that might be forced to delever at an inopportune time.

The Sword of Inelastic Supply cuts both ways.

Not a stretch to envisage a positive feedback loop dynamic where:

Deteriorating business fundamentals -> Forced deleveraging ->
Sharp $BTC decline due to inelastic supply -> Imploding capital structure ->

Rinse & repeat
I'll end it here. Fun times are ahead possibly. (END)

Listening to the Q&A, it's rich that Saylor is blaming a "challenging macro environment" to the USD Wrecking Ball!!🤑😂

Between the repeated priming (aka fucking over) via senior secured debt and the blatant disregard for shareholder interests via reckless capital reallocation, one wonders why there are ANY institutional shareholders in this name.

I can’t help but wonder how this new CFO can sleep at night in his new role. 🐑 to🩸🔪 ?

Did I just hear that $BTC is part of $MSTR ‘s 401K program and “might become voluntary” at some point?

For anyone interested, I have written several $MSTR threads in the past to educate folks on how to think about his capital structure:

This is KEY:

For whatever it's worth, $MSTR is not the only tail wagging the $BTC dog. There are many potential sloppy Jenga players removing blocks at the bottom of a shaky tower.

Great way to paint a on your back!

https://markets.businessinsider.com/news/stocks/microstrategy-bitcoin-margin-call-21000-crypto-loan-mstr-stock-price-2022-5

Does anyone know where $MSTR CDS trades, both senior and senior unsecured? I can’t be the only one wondering today.

Funny how every time I write about $MSTR/$BTC I get accused of spreading “FUD.” Never have I encountered such tribalistic zealotry regarding an “investment.” Sign of the times.

Here is the first big thread I wrote about $MSTR over a year ago, using a real options framework to explain how Saylor has embedded massive short-vol dynamics into his capital structure.