Strategy’s STRC Price-Stability Mechanism Has Effectively Failed, Parasite Investor Says

The price-stability mechanism for STRC, the perpetual preferred stock issued by Strategy, has effectively stopped working, according to Parasite Investor, which said the company may need to address the problem through share buybacks or other steps.

On June 27, Parasite Investor wrote on X, formerly Twitter, that STRC’s price-stability mechanism is “inherently unstable” and is now “effectively nonfunctional.”

STRC is a dividend-paying preferred stock structured to keep its issue price at $100. If the market price falls below $100, the dividend rate can be raised. If it rises above $100, the dividend rate can be lowered.

STRC is currently trading at $75, implying room for a further increase in the dividend rate. But if investors become more concerned about Strategy’s rising credit risk, a higher dividend rate could instead increase the company’s financial burden and trigger a “death spiral,” Parasite Investor wrote. Allowing the company to adjust the dividend rate at its own discretion could also heighten investor uncertainty.

Strategy’s failure to raise the dividend rate even as STRC trades at about $75 shows the price-stability mechanism has effectively failed, it added. Over the longer term, the company will probably either buy back the shares in the market or restructure the product by abandoning the price-stability mechanism and cutting the dividend rate to around the SOFR level.