Farside Investors says Strategy’s STRC preferred product carries structural risks tied to its discretionary coupon and price-stability mechanism. The critique lands as Strategy shifts toward active balance-sheet management, including a dollar reserve, preferred buybacks, and possible bitcoin sales.
Key Takeaways:
Farside says STRC’s $100 price mechanism may weaken if Strategy raises coupons.Strategy plans buybacks, a dollar reserve and possible BTC sales to manage risk.STRC traded near $75 before rebounding, with Farside urging buybacks or a shift toward SOFR.Strategy’s move to create a Digital Credit Capital Framework has sharpened scrutiny of one of its most complex financing tools: STRC.
In theory, if STRC trades below $100, Strategy can raise the dividend to support the price. If it trades above $100, the company can lower the dividend. Farside says that structure creates a dangerous feedback loop. If investors become more concerned about Strategy’s credit risk, STRC could fall. Raising the dividend to support the price could then increase cash strain and further weaken confidence.
The firm also notes that the coupon is discretionary, not automatic. That gives Strategy flexibility, but it also creates uncertainty for investors trying to value the security.
Coupon Flexibility Creates Valuation GapThe analysis points to a sharp valuation split. If investors assume STRC keeps paying an 11.5% dividend in full, Farside’s calculator values the instrument at about $144 using an 8% discount rate.
But STRC is not a fixed-rate bond. Strategy has the right to lower the coupon by 25 basis points each month, potentially all the way down to Secured Overnight Financing Rate (SOFR), which Farside cites at around 3.6%. Under that assumption, the instrument is valued at about $55.
That gap explains why STRC is difficult to price. It was not issued at $55 or $144, but around $100, meaning investors were effectively buying into uncertainty over future coupon policy and the credibility of the price-stability mechanism.
STRC has recently traded around $75, roughly 25% below its target price, before rebounding to $86. Farside said that suggests the stability mechanism is already failing, or at least no longer functioning as investors may have expected.
Strategy Moves From Buyer to ManagerFarside sees two likely long-term solutions: buy back STRC or abandon the price-stability mechanism and move the coupon toward SOFR. Doing nothing may be easier in the short term, but the firm says it only delays the problem.
