Summary:
The business intelligence and analytics company of Microstrategy
could be set to receive a margin call on its debt if Bitcoin (BTC) drops below $21k. This is according to the company’s CFO, Phong Le, during the company’s most recent earnings call.Mr. Le was responding to a question by Microstrategy’s Senior Director, Treasury and Investor Relations, Shirish Jajodia, who asked how far Bitcoin
had to fall for the company to receive a margin call on its $205 million loan from Sivergate Bank. Mr. Le responded that BTC had to drop to $21k, but the company was ready to contribute more to its existing position. He said:We took out the loan primarily so that we could continue to invest more in Bitcoin and also really to create a market for a Bitcoin-backed term loan…
As far as where Bitcoin needs to fall, we took out the loan at a 25% LTV, the margin call occurs 50% LTV. So essentially, Bitcoin needs to cut in half or around $21,000 before we’d have a margin call.
That said, before it gets to 50%, we could contribute more Bitcoin to the collateral package, so it never gets there, so we don’t ever get into a situation of March call also.
The loan in question from Silvergate bank is worth $205 million and bears interest at a ‘floating rate equal to the Secured Overnight Financing Rate 30 Day Average as published by the Federal Reserve Bank of New York’s website plus 3.70%, with a floor of 3.75%’
It is also payable monthly in arrears beginning May 2022 and will mature in March 2025 unless earlier repaid per its terms.
At the time of writing, Microstrategy owns 129,218 Bitcoin. According to the company’s first-quarter financial results of 2022, the company’s holdings of Bitcoin have a ‘cumulative impairment losses of $1.071 billion since acquisition and an average carrying amount per bitcoin of approximately $22,409.’
[Feature image courtesy of Michael Saylor on Twitter]