Michael Saylor, CEO, and co-founder of MicroStrategy reassures lender Silvergate Bank that the company will post alternative collateral for a $205M loan should BTC dip below $3,562.
As bitcoin tracked stocks in the last 24 hours, falling to levels as low as $29K, the co-founder and CEO of business intelligence firm MicroStrategy, Michael Saylor, allayed fears that its bitcoin reserves could prove insufficient to collateralize a $205M loan. “MicroStrategy has a $205M term loan and needs to maintain $410M as collateral,” the bitcoin bull said, referring to money borrowed by MacroStrategy, a subsidiary of MicroStrategy. MacroStrategy signed a Credit and Security Agreement with Silvergate Bank to borrow $205M in March 2022, using bitcoin held by a third-party and $5M in cash reserves as collateral. As per the agreement, MicroStrategy is required to ensure that a loan to value ratio of 50% is always maintained, excluding the $5M cash reserve held in a Silvergate account. As of March 31, 2022, MicroStrategy had pledged 19466 of the bitcoins held as collateral, representing $914M, with each BTC worth around $46K.
We have a lot more, says CFO
At current prices ($31K), the 19,466 bitcoins pledged would still be sufficient at $583M, needing to drop to about $21K to necessitate a margin call, said CFO Phong Le. In this context, a margin call refers to the lender’s demand on the borrower to maintain a certain loan-to-value ratio. “We have more that we could contribute in the case that we have a lot of downward volatility,” he said. Accordingly, Saylor is preparing for a sub $10K scenario, indicating that his company could pledge up to 115,109 bitcoins. These additional coins would ensure that the loan to value ratio would remain at 50% should bitcoin dip as low as $3,562. Beyond that, he said that his company would ensure additional collateral was available. However, he didn’t clarify where that collateral could come from.
Some view this scenario as unlikely, however. One Twitter user, ZanderQuinn1, responding to Saylor, tweeted, “…Bitcoin will never see 3k again, an antminer costs like 6-8k,” arguing that bitcoin would never drop as low as Saylor was suggesting since an Antminer computer used to create new bitcoins itself costs between $6K to $8K.
Saylor still bullish, despite concerning numbers
MicroStrategy’s bitcoin holdings saw their value plummet to below their average purchase price when the price for a single bitcoin dropped under $30700 yesterday. Furthermore, shares of MicroStrategy were down 58% this year, reflecting a souring sentiment toward tech stocks, reports Barron’s.
According to a Bloomberg report, Saylor remains undeterred and intends to buy more bitcoin. The company holds 129 218 bitcoins as of April 4, 2022, worth over $4B, around 2.5 times larger than the holdings of its nearest competitor, Tesla.
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