MicroStrategy redemption convertible bond: 100% downside protection, with a return rate of up to 147% investment strategy

MicroStrategy, a company that claims to be focused on BTC development, announced on Friday that it will redeem $1.05 billion worth of convertible notes due in 2027. Noteholders can choose to convert at applicable conversion rates until February 20, with $1,000 principal convertible into 7.0234 shares of MicroStrategy Class A common stock, equivalent to a conversion price of $142.38 per share.

MicroStrategy executes a ‘Soft Call’ with a return rate of up to 147%

MicroStrategy (MSTR) is currently trading at $353.67, while these convertible bonds were issued in February 2021 when the MicroStrategy stock price was $95.5. (Adjusting for stock split), the original terms were that MicroStrategy can redeem all or part of the notes at the Soft Call, which means it can redeem the notes at a redemption price equal to 100% of the principal amount of the notes to be redeemed, together with accrued and unpaid special interests, after February 2024.

And investors who bought convertible bonds at the beginning, equivalent to subscribing to MicroStrategy’s stock options at a price of $143.38, with a 50% premium over the issuance price of $95.5. If calculated at the closing price of $353.67 on Friday (1/24), the return rate is as high as 147%, with 100% downside protection. Although this bond does not pay interest, as long as MicroStrategy does not go bankrupt, the bond can also be redeemed at maturity.