MSTR’s Credit Rating: Understanding the Landscape of Bitcoin Investment Risks
MicroStrategy Incorporated (MSTR) has recently received a B- credit rating from S&P Global, marking a significant development for the company. This rating indicates the financial risks associated with its business model, which primarily revolves around holding bitcoin. Although MSTR boasts a substantial market capitalization and solid access to capital markets, the credit rating categorizes it within non-investment grade territory, often referred to as "junk bonds." S&P’s rating criteria define a B rating as indicative of "speculative credit quality with increased default risk," with the B- reflecting an even higher level of speculation and risk.
Founded as an enterprise software company, MSTR has shifted towards becoming essentially a bitcoin holding vehicle. The firm has notably transformed its capital allocation strategy, utilizing the majority of its excess cash to purchase bitcoin. To finance its operations and crypto acquisitions, it’s issuing convertible debt, preferred stock, and new equity. Executive Chairman Michael Saylor proudly noted that MSTR is the first bitcoin treasury firm to be rated by a leading credit agency, indicating a milestone that could signal growth in market interest for similar companies. As mentioned by David Bailey, CEO of KindlyMD (NAKA), the demand for treasury firms like MSTR is expected to surge.
Institutional investors, particularly pension funds, often use ratings as a benchmark for evaluating corporate investment opportunities. MSTR’s current junk rating may hinder its ability to attract a broad array of institutional investors but presents a potential pathway for future upgrades that could open new capital channels. As of mid-2025, the company’s bitcoin assets were valued at approximately $70 billion, starkly contrasting with its $15 billion in outstanding convertible debt and preferred equity. This seeming balance sheet strength, however, can be misleading.
S&P highlighted various structural issues hindering MSTR’s financial stability, including a low cash reserve and minimal reliable operating income. The software segment has yielded breakeven results, leading to negative operating cash flow of $37 million in the first half of 2025. Furthermore, S&P flagged a concerning "currency mismatch." MSTR’s assets reside chiefly in bitcoin, while its debt and dividend obligations are in U.S. dollars, potentially forcing the company to sell bitcoin at unfavorable prices to meet its financial commitments, particularly during market downturns.
Adding to the financial pressures, MSTR faces a significant annual obligation of over $640 million in preferred stock dividends. Although the company can defer some of these payments, such actions could enforce governance penalties that may restrict operational flexibility. The rating agency noted that MSTR has indicated plans to fund dividends through new equity sales rather than liquidating its bitcoin holdings, which suggests a strategy to balance immediate liquidity demands against the long-term value of its digital assets.
Despite these challenges, S&P has maintained a stable outlook for MSTR, citing the relative success the company has shown in managing its debt and maintaining access to capital markets. With no major debt maturities until 2028, MSTR has some breathing room, provided the bitcoin market maintains its value. S&P stated that it may consider a downgrade if the company’s access to capital becomes constrained or if debt repayment risks escalate. An upgrade is currently unlikely unless MSTR significantly enhances its liquidity in U.S. dollars and reduces reliance on convertible debt.
In conclusion, MicroStrategy’s credit rating from S&P Global serves as a crucial barometer for investors assess the financial risks associated with bitcoin-centric business models. While the company has positioned itself as a leader in treasury bitcoin holdings, the inherent fluctuations in the cryptocurrency market present significant risks. As the company’s fortunes remain entwined with bitcoin’s performance, both current and potential investors must carefully evaluate the implications of MSTR’s rating and the broader market conditions influencing its strategy for future growth.
