"Too high a dependence on Bitcoin"… S&P assigns 'junk bond' rating to Strategy

S&P Global Ratings has assigned the world's largest Bitcoin (BTC) holder Strategy a speculative-grade 'B-' credit rating. This is at a non-investment-grade (junk bond) level, and a Bitcoin-centric business structure and low dollar liquidity were cited as risk factors.

On the 27th (local time), according to crypto-focused outlet Cointelegraph, S&P said in the evaluation report, "Strategy's concentration in Bitcoin, limited business diversification, low capitalization relative to risk, and lack of U.S. dollar liquidity are acting as weaknesses." However, the outlook was maintained as 'stable.'

S&P explained, "We expect Strategy to manage the maturities of its convertible bonds and preferred dividends prudently and to secure liquidity through additional borrowing if necessary." Strategy currently holds 648,008 bitcoins, most of which were purchased with funds raised through equity and debt issuances. S&P also analyzed, "While all debt is denominated in dollars, a significant amount of cash is being used in software business operations, creating a currency mismatch risk."

S&P expects that the likelihood of a rating upgrade for Strategy within the next 12 months is low. However, S&P said, "There is room for an upgrade if dollar liquidity improves, convertible bond burdens ease, and access to capital markets is maintained." On the other hand, it warned, "If convertible bond repayments coincide with a sharp drop in Bitcoin prices, there is a risk of selling held Bitcoins at low prices," and "the rating could fall further if funding ability weakens."