Distressed debt investors are exploring potential exchanges of preferred securities issued by Strategy Inc. as the company's prolonged share price decline creates opportunities across its capital structure, according to a Bloomberg report.
Several funds have held preliminary discussions with Moelis & Co. about exchanging Strategy's preferred shares for other preferred securities at a discount or potentially for common stock. Any transaction would likely be structured as a Section 3(a)(9) exchange, allowing securities to be swapped without SEC registration.
The talks come as Strategy faces mounting pressure from the crypto market downturn. The company's shares have fallen around 75% over the past year, while weaker Bitcoin prices have forced it to reassess its financing strategy and recently sell a record $216m of Bitcoin to raise liquidity.
For distressed investors, a swap could offer greater upside if Strategy recovers, while the company could reduce dividend obligations tied to its preferred stock. The dislocations have also attracted hedge funds pursuing capital structure and relative-value trades across the company's preferred shares, convertible debt and common equity.
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