MicroStrategy Inc (NASDAQ: MSTR) evidently is looking for ways to acquire additional bitcoin. The firm this morning announced that it has entered into a term loan agreement with Silvergate Bank, which will be collateralized by certain bitcoin held by MicroStrategy.
The loan is pegged at $205 million, and has been issued to MacroStrategy LLC, a subsidiary of MicroStrategy focused on the opportunity presented by bitcoin. Net proceeds amounted to $204.7 million after closing fees and expenses, with proceeds to be used to purchase bitcoin, for fees, and for general corporate purposes.
Most significantly, the loan has been collateralized via bitcoin, with bitcoin valued at $820.0 million put into a collateral account with a custodian. Under the terms of the arrangement, the loan must maintain a loan to value, or LTV, of 50% or less, meaning at least $410 worth of bitcoin must be held by the custodian at all times during the term of the loan.
Notably, if the price of bitcoin were to drop and result in the LTV exceeding 50%, the loan will then automatically require a LTV of 25% or less – meaning more bitcoin than the initial $410 million required would need to be deposited with the custodian. A $5.0 million cash reserve was also required as part of the loan.
The debt currently has a maturity of March 23, 2025. It bears interest at the Secured Overnight Financing Rate 30 Day, as published by the New York Fed, plus 3.70%, and contains a floor of 3.75%. The full principal value is due at maturity.
“The SEN Leverage loan gives us an opportunity to further our position as the leading public company investor in bitcoin. Using the capital from the loan, we’ve effectively turned our bitcoin into productive collateral, which allows us to further execute against our business strategy,” said CEO Michael Saylor on the announcement.
MicroStrategy last traded at $510.00 on the Nasdaq.
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