- Global ratings firm S&P handed Strategy a “B-” rating in its latest evaluation, citing its reliance on a Bitcoin-focused operation.
S&P Global, a global financial intelligence solutions provider, recently conducted a comprehensive evaluation of Strategy (formerly MicroStrategy). The assessment resulted in a “B-” rating for the company based on certain factors, primarily on its Bitcoin (BTC)-focused scheme.
Strategy’s Business Model
According to S&P, Strategy’s business model primarily revolves around Bitcoin accumulation. It finances its operations through the proceeds of its equity issuance and debt financing.
The company tailored its security offerings to provide investors of varying risk-return profiles with different degrees of exposure to BTC. Meanwhile, a small part of its framework delves into small software business solutions with AI (artificial intelligence)-powered enterprise analytics.
S&P Explains Strategy’s ‘B-’ Rating
S&P explained that it mainly grounded its “B-” rating for Strategy due to the company’s high concentration on Bitcoin. It claimed that the same factor will continue to carry a significant weight on its ratings in the future.
The ratings firm highlighted that the company exhibits a long Bitcoin position and a short US dollar position. It mostly settles debt maturities, interest, and dividends on its preferred securities in fiat money. Additionally, it keeps cash for its operational expenses, particularly for its software business. However, any excess goes to its BTC accumulation scheme.
S&P commended Strategy’s Bitcoin-centric program, calling it “unique in scale.” However, other digital asset treasuries (DATs) could easily replicate its program, which would likely pressure the company to reconfigure its securities’ valuation.
Moreover, S&P believes Strategy will continue to gain momentum from investors’ increasing demand for Bitcoin. But then again, its heavy concentration on the asset makes it vulnerable to sudden regulatory shifts related to BTC or the broader crypto market.
Besides its prioritization of Bitcoin and weakness in US dollar liquidity, other factors influencing S&P’s ratings for Strategy include the company’s narrow business focus and weak risk-adjusted capitalization.
Confidence in Strategy
S&P’s “B-” rating indicates “speculative credit quality with increased default risk.” Nonetheless, the financial market specialist stated that it has a stable outlook for the company.
The ratings firm is confident that the Bitcoin development company will “continue to prudently manage maturities of its convertible debt.” Furthermore, it will likely maintain its current market standing and continue its debt issuance for BTC purchases.
S&P noted that it can upgrade Strategy’s score in the next 12 months if it improves its US dollar liquidity, reduces its reliance on convertible debt, and displays strong access to capital markets even during Bitcoin stress.
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