Strategy’s STRC ‘Stretch’ preferred drops 13% below $100 peg in a week

Strategy’s variable-rate “Stretch” preferred, STRC, fell about 13% in a week, hitting a low near $87—well below the $100 level it was designed to hold. Under the structure, Strategy issues new shares and uses the proceeds to buy Bitcoin when STRC trades at or above $100, but halts issuance and Bitcoin purchases when it falls below. A softer Bitcoin price is adding to the discount, and the company has said that if mNAV falls below 1.22x it would be more accretive to sell Bitcoin to pay dividends on $1.7 billion of preferred stock. The breakdown in the mechanism is raising questions in the market about Strategy’s operating model and credit underpinning.