Apple could buy 1.8 million magical bitcoins and print free money forever and ever and ever.....

So with a convertible bond a you are guaranteed a floor price that is your investment plus interest...and it also doubles as a call option where you can convert the position into shares.

Is the conversion done at market price at maturity or is there a "strike" price attached to the bond? If conversions are done at market price, then isn't it essentially a cash position that is earning interest?

https://www.rbcgam.com/documents/en/articles/understanding-convertible-bonds-factsheet.pdf








As bond holders convert then dilution would kick in causing more downside? So the bond will actually generate the convertible shares at the time of conversion? Essentially it will act like a mini share offering? How can we see how many convertible bonds are currently open?






"TYSONS CORNER, Va., September 18, 2024 — MicroStrategy® Incorporated (Nasdaq: MSTR) (“MicroStrategy”) today announced the pricing of its offering of $875 million aggregate principal amount of 0.625% convertible senior notes due 2028 (the “notes”). The notes will be sold in a private offering to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). MicroStrategy also granted to the initial purchasers of the notes an option to purchase, within a 13-day period beginning on, and including, the date on which the notes are first issued, up to an additional $135 million aggregate principal amount of the notes. The offering was upsized from the previously announced offering of $700 million aggregate principal amount of notes. The offering is expected to close on September 19, 2024, subject to satisfaction of customary closing conditions.

The notes will be unsecured, senior obligations of MicroStrategy, and will bear interest at a rate of 0.625% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2025. The notes will mature on September 15, 2028"


OK so as Saylor mentioned in the video, they are able to leverage bitcoin purchases without taking on margin because these bonds are unsecured. So what does this work out to for an investor?

100k * .625%=$625 annually?

"The conversion rate for the notes will initially be 5.4589 shares of MicroStrategy class A common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $183.19 per share. "

So with 100k invested you are able to convert to 100k/1000*5.4589=545 MSTR shares.

Is the conversion done at the 183.19 price or at the current market price at the time of the conversion?

 

It's not AAPL that is considering buying bitcoin for their treasury, it is MSFT that has a vote next month

 

In the above example you have invested 100k into a convertible bond. Upon conversion you will receive 545 MSTR shares.

Going by par value at .625% on 100k you will have received only $625x4 years in interest, so your total par value is 102,500/545=188.07 avg price.

On Sep18 when this article was written MSTR shares were trading at $150...now they are trading at $430.54...so it would be totally beneficial to convert because you would be up $132k

AND if price falls below 188.07, you can just cash out at maturity and buy MSTR shares at the lower price...essentially like a cash position that earned some interest.

This is WAY better than buying call options! How does one buy MSTR convertible bonds? The only risk is non-payment, and the dilution of shares as bonds are converted depending on how aggressively MSTR is selling...



(rough math) par value of 4.25B/1000*5.4589=23200325

So there is the potential of an additional 23M shares being added to the float.

As of October 28, 2024, MicroStrategy (MSTR) had 202.64 million shares outstanding.

So 23M/202M=11% so a potential 11% dilution/decrease in price if all outstanding bonds are converted? But it would only make sense to convert if price goes up, not if price goes down so this would likely only stifle the upside...in a downturn, investors would cash out and buy in so it would stifle the downturn.

 

agreed.

one pedantic note: fx is taxed. If you buy gbp and it rallies and you sell it. You are taxed on that gain.

 

The reason people have been hodling this for years is because they figured out that bitcoin was not a currency but akin to beachfront property...limited supply and high demand.

 

I wonder if one day this statement will go the way of the polyester leisure suit of the '70s.

 

Sorry, fresh out.

But I do have a couple questions for you. Do you have a price target in mind at which point you would cash out? And, in the meantime, do you have anything resembling a stop loss?