Strategy (MSTR) Receives B- Credit Rating from S&P Global

Strategy (MSTR) has been assigned a B- credit rating by S&P Global. This rating indicates S&P’s perspective that the firm’s business model, primarily based on Bitcoin holdings, carries substantial financial risks. This is notable given the company’s significant market capitalization and robust access to capital markets.

In S&P’s rating hierarchy, the lowest investment grade starts at BBB, while Strategy sits at a B-, which classifies it within the non-investment grade category often referred to as junk bonds.

A B rating generally denotes a “speculative credit quality with increased default risk.” Thus, a B- suggests that it’s slightly more speculative and carries a higher risk of default compared to CCC, which indicates very low credit quality and elevated default risk.

Under Michael Saylor’s leadership, the company has shifted from being primarily an enterprise software provider to functioning essentially as a publicly traded Bitcoin entity. They’ve invested nearly all their excess cash into acquiring more Bitcoin and are funding much of their operations through issuing convertible debt, preferred stock, and equity.

Michael Thaler, on the Executive Committee, highlighted that his company became the first Bitcoin finance organization to receive a rating from a major credit agency. Others in the industry, such as KindlyMD CEO David Bailey, echoed this sentiment, noting that the market interest in finance companies is expected to surge.

Credit ratings often play a crucial role in enabling pension funds and institutional investors to invest in corporate papers. While currently rated as junk, there lies potential for upgrades that could unlock significant funding opportunities for the company.

S&P’s Perspective

As of mid-2025, Strategy’s Bitcoin assets are valued at about $70 billion, in contrast to roughly $15 billion in convertible debt and preferred stock. However, S&P cautioned that the company’s balance sheet strength can be misleading, as it possesses minimal actual cash and nearly no stable operating income. The software side of the business is nearly breaking even, with an operating cash flow of negative $37 million from January to June 2025.

S&P also pointed out a “currency mismatch.” Most of the company’s assets are in Bitcoin, while its obligations are in US dollars. If the company struggles to raise adequate capital during economic downturns, it may be forced to liquidate Bitcoin, possibly at a loss. The agency warned about potential liquidity shortages if Bitcoin values drop and investment interest wanes.

A significant factor holding back the company’s rating is its negative adjusted total capital. S&P’s methodology excludes Bitcoin from equity calculations due to its unpredictability and lack of correlation with market risks. This results in a paper capital deficit, despite the numerous digital assets the company possesses.

Additionally, the dividends on preferred stock are a looming concern. The company owes over $640 million annually across four preferred stock classes. While they could defer these payments, doing so might lead to governance penalties, like granting board seats to preferred shareholders. Some classes of preferred stock also accumulate higher interest on deferred payments, prompting Strategy to consider raising dividends through new share offerings instead of selling Bitcoin.

Nonetheless, S&P has assigned the company a stable outlook, recognizing its past ability to manage debt maturities and maintain capital access. With the next significant expiration not until 2028, there’s some operational leeway—unless, of course, Bitcoin prices plummet.

Should the company encounter restrictions in capital access or heightened debt repayment risks, S&P indicated that a downgrade could be on the horizon. Conversely, an upgrade seems unlikely in the short term unless it significantly boosts its dollar liquidity and diminishes reliance on convertible debt for financing.

Ultimately, in S&P’s view, Strategy’s prospects remain intertwined with Bitcoin’s performance. As long as this relationship holds, the associated risks will persist.

On a bright note, MSTR’s stock climbed nearly 3% on Monday as Bitcoin prices surged to $115,500 over the weekend.