Strategy Could Sell Up to $1.25B of Bitcoin Under ‘Digital Credit Capital Framework’

Strategy on Monday introduced a ‘Digital Credit Capital Framework’, which sets out the conditions under which the Bitcoin treasury company could sell the digital asset in the future and provide an updated look at how it plans to balance resources now that its flagship preferred shares have come under pressure.

The company’s board has approved a program that will allow Strategy to sell as much as $1.25 billion worth of Bitcoin to fund its cash reserves, make payouts on products like Stretch (STRC) or buy back securities, including common stock, when deemed appropriate.

“The strategy remains committed to Bitcoin as its core treasury asset,” co-founder and executive chairman Michael Saylor said in a statement statement. “At the same time, digital credit requires liquidity, discipline and active capital management.”

Saylor noted that the framework is intended to “strengthen credit quality” and allow Strategy to “reduce expected preferred stock dividend payments as they increase.”

Not long after the company’s announcement, Bitcoin changed hands for around $59,800, down 0.5% in the past day, per CoinGecko data. Shares of Strategy rose 5% to $86.52 in pre-market trading Yahoo Finance.

In the announcement, Strategy did not reveal a Bitcoin purchase, but rather noted that the so-called USD Reserve had been rebuilt to $2.55 billion. The company had set aside $2.25 billion at the beginning of this year to manage dividends and debt.

The strategy indicated that the company’s cash stockpile at current levels could cover about a year and a half of dividends. In the event it were to sell $1.25 billion worth of Bitcoin, the company said it had enough resources to cover about 26 months of dividend costs.

Analysts had called for the company to raise more cash after Strategy’s stock built up slimmed down to cover just 14 months of recurring costs. Going forward, Strategy said it would maintain enough cash to cover dividends for at least a full year.

The company indicated that STRC’s dividend had been increased by 50 basis points to 12%, increasing the product’s dividend rate for the eighth time. In recent weeks, STRC has fallen more than 25% from its $100 par value, the level at which it was designed to trade.

“The actions announced today are intended to support that objective by strengthening preferred dividend liquidity, increasing market confidence in Strategy’s Digital Credit Securities and providing the company with additional capital allocation tools,” the company underlined.

STRC rose to $82.50 by the opening bell Yahoo Finance. On Friday, the preferred stock that was floated on low volatility fell to a low of $71.25, indicating that market conditions were dampening investor confidence in the dividend-paying product.

Strategy noted Monday that it may not increase STRC’s dividend “just because” the product was trading below par. When STRC hit record lows, analysts began expecting the Bitcoin buying company to increase the product’s dividend in response.

As part of its framework, Strategy said it could buy back as much as $1 billion of preferred stock, including alternatives such as Strife (STRF), and $1 billion of common stock to capitalize on “market dislocations” with funds segregated from its USD Reserve.

Strategy said it was expected the buyback program would initially focus on STRC, with purchases discounted to face value able to reduce the product’s recurring costs. In less than a year, Strategy has issued more than $10 billion in preferred stock.

As Strategy looked to rebuild its cash reserves in recent weeks, some onlookers had noted that the activity has eroded the Bitcoin the company owns per share, which has long served as the company’s North Star in terms of shareholder value.

Going forward, the company indicated it would not spend moree common stock to buy Bitcoin unless the company was valued at a premium to its holdings. On Monday, the company’s so-called mNAV stood at 0.99, which represents a slight discount.

Meanwhile, the company’s Bitcoin inventory remained unchanged at 847,363 Bitcoin. At current digital asset levels, the company’s assets were valued at nearly $51 billion. That meant that Strategy’s Bitcoin stock showed about $13.1 billion in losses on paper.

On Myriad, a prediction market from Declutter parent company Dastan, traders provided a 15% chance that Strategy would own more than 1 million Bitcoin before the end of the year. That represented a slight improvement compared to the 14.5% quotation a week ago.