From STRF to STRD — is Michael Saylor just selling junk bonds?
Some followers of Michael Saylor have grown tired of his alliterative naming convention for a ballooning series of MicroStrategy (MSTR) preferred shares.
After Strike, Strife, and now Stride, some shareholders just want to call a spade a spade. Indeed, according to several investors, his latest preferreds should be simply junk bonds.
Saylor characterized Stride (STRD) as perpetual preferred stock with $100 of liquidation preference paying non-cumulative dividends at 10%.
Bullish fans called his invention a “bitcoin black hole,” allowing time-space relocation of capital to benefit current MSTR shareholders with future opportunities.
With Stride spinning this black hole, bullish shareholders saw “everything in the financial system being sucked in towards MicroStrategy.” Memes with singularity imagery proliferated across social media.
Other investors were far less impressed. Rather than imagining a financial event horizon eclipsing a $140 trillion bond market into the Bitcoin standard, they simply analyzed the characteristics of STRD itself.
Is Stride (STRD) a MicroStrategy junk bond?
According to these skeptics, MicroStrategy’s STRD is a simple junk bond. It’s a variation on earlier preferreds, Strife (STRF), with similarly high yields yet non-cumulative, non-mandatory dividends. Lower seniority in a capital stack, plus high yields, are quintessential characteristics of junk bonds.
However, the appropriation of the term seems to be mostly colloquial.
Read more: MicroStrategy admits it might need to sell bitcoin by 2026
Strictly speaking, preferred shares cannot be bonds. Unlike bonds, preferreds have some voting rights, don’t have a maturity date, and aren’t senior to all equity instruments.
Moreover, credit ratings agencies like Moody’s or Standard & Poor’s don’t rate preferreds. Actual junk bonds are rated by credit agencies below investment grade (Baa or BBB, respectively).
In summary, STRD is a dividend-yielding stock that is junior to other series of preferreds, but it’s not a speculative-rated debt security. Although both STRD and classic junk bonds offer proportionally higher potential returns for investors willing to accept their higher risks, they are technically distinct.
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