Farside: Strategy's STRC price stability mechanism has virtually collapsed

Financial intelligence platform Farside Investor has diagnosed in a report that the price stability mechanism for Strategy's (MSTR) perpetual preferred stock, STRC, is effectively non-functional and could lead to significant long-term issues if the current structure is maintained. The report noted that STRC was designed to increase its dividend rate when the stock price falls below $100 to support its recovery and lower the rate when it exceeds $100. However, Farside described this as a structurally unstable mechanism, as rising credit risk for the company would necessitate higher dividend payments, creating a vicious cycle of increasing financial strain. Currently, STRC is trading at around $75, a 25% discount to its par value, yet Strategy has not increased the dividend rate. Farside argues this indicates the price stability mechanism has virtually collapsed, with no guarantee that STRC will recover to $100. The report suggests realistic alternatives for Strategy include buying back STRC shares or abandoning the mechanism and gradually lowering the dividend rate to the Secured Overnight Financing Rate (SOFR) level. While Strategy is likely to fund dividends in the short term by issuing new shares or selling BTC, Farside believes the company will probably move to buy back STRC or restructure its dividend system in the long run.