Strategy’s USD reserve didn’t last long

Strategy (formerly MicroStrategy) told preferred shareholders that its so-called USD Reserve was their safety net. Half a year later, it drained most of it to retire zero-coupon debt that was costing the company nothing in interest.

Indeed, in December, Michael Saylor’s Strategy said it established a $1.44 billion USD Reserve “to support the payment of dividends on its preferred stock and interest on its outstanding indebtedness.”

It’s now used most of it for purposes other than paying interest and dividends.

USD Reserve is a fancy term for cash used by the company to distinguish cash from its bitcoin (BTC) reserve, which it considers more “pristine.”

It also wanted to earmark the cash as a meaningful reserve for a particular obligation, namely, dividend and interest obligations.

Strategy’s management diluted common shareholders through at-the-market (ATM) sales of MSTR to create the USD Reserve.

As common shareholders suffered dilution and no commensurate gain in BTC, preferred holders enjoyed a safety net for a few months, thinking the company would actually use its USD Reserve as promised. 

At inception, President and CEO Phong Le framed the cash buffer as a trust signal, claiming it “currently covers 21 months of dividends.”

By late December, additional ATM sales had pushed the reserve to roughly $2.19 billion, covering more than 2.5 years of dividend payments.

The pitch to STRC, STRK, STRF, and STRD investors was straightforward. Your monthly dividends are safe. A wall of cash stands in support of your dividends.

USD reserve built for dividends, spent on something else

Fast-forward to May 2026, and instead of keeping that USD in reserve for dividends and interest payments, $1.38 billion disappeared within two weeks for something else.

Specifically, between May 11 and May 25, 2026, Strategy repurchased $1.5 billion in aggregate principal of its non-interest-bearing, 0% coupon Convertible Senior Notes due 2029.

Because the bonds were trading at a discount to par, Strategy paid $120 million less than the $1.5 billion principal.

Those convertible bonds were generating $0 ongoing interest expense for the company and were nowhere close to converting into MSTR.

Indeed, Strategy issued the original $3 billion tranche in November 2024 at a conversion price of $672.40 per share of MSTR. MSTR has not traded anywhere near that level in months.

The company confirmed that the USD Reserve was the funding source for retiring these bonds. 

As a result of this action that did nothing “to support the payment of dividends on its preferred stock and interest on its outstanding indebtedness,” despite the company’s December 1 promise, the company’s USD Reserve has declined 63% from $2.188 billion at the start of the year to $871 million today.

Read more: Strategy’s BTC binge has cost it $1 billion in expenses

Replenishing USD by diluting Strategy shareholders, again

CFO Andrew Kang called the 0% bond buyback “both equity and credit positive for our investors and demonstrates our continued focus on liability management.”

The numbers tell a less flattering story.

Obligations across Strategy’s four series of dividend-paying preferreds now exceed $1.7 billion annually. At the start of 2026, Strategy’s USD Reserve could cover more than 2.5 years worth of dividends. Today, it can cover six months.

Kang also said the company “remains committed to maintaining a robust cash reserve to support the credit quality of our Digital Credit securities.” The plan is to rebuild the buffer through more sales of MSTR common stock and STRC preferred.

The same dilution mechanism that built the cash buffer will now refill it. 

MSTR closed Wednesday at $154.20, down 58% over the trailing 12 months. These are the shareholders alongside STRC investors who will have to stomach even more dilution soon.

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