S&P Slaps B- rating on Strategy (MSTR), Bitcoin (BTC) Exposure and Cash Burn Noted
The strategy (MSTR) received a credit rating of B- from S&P Global on Monday. The rating reflects S&P’s view that the company’s business model – centered almost entirely on holding Bitcoin – carries significant financial risk, despite its large market cap and strong access to capital markets.
The lowest investment grade rating on the S&P scale is BBB, making the Strategy’s B-rating firmly in non-investment grade territory, otherwise known as junk bonds.
According to S&P, an r rating means “speculative credit quality with increased default risk.” A B- means a little more speculative and a little more increased default risk, but not as bad as CCC, which means very low credit quality with a high risk of default.
The Michael Saylor-led firm has transformed from a business software company into what is essentially a publicly traded Bitcoin holding a car. The firm uses almost all of its excess cash to buy more Bitcoin and finance many of its crypto operations and purchases by issuing convertible debt, preferred stock, and equity.
Strategy Executive Chairman Michael Saylor mentioned His company became the first Bitcoin Treasury firm to receive a rating from a major credit agency. His thoughts were echoed by others in the industry, among them Kindlymd (Naka) CEO David Bailey, who said “Market demand for Treasury companies is about to explode.”
Ratings are often a necessary step for many pension funds and other institutional investors to invest in corporate paper. Stategy is junk-rated right now, but future upgrades could open the doors to a lot of funding.
S&P thinking
By mid-2025, Strategy’s bitcoin holdings will be worth about $70 billion, compared to about $15 billion in total outstanding convertible debt and preferred equity. But that balance sheet strength is misleading, S&P said, because the strategy has very little actual cash and almost no reliable operating income. The company’s software business is almost breakeven, and from January to June 2025, the strategy has posted a negative $37 million in operating cash flow.
S&P also flagged the so-called “currency mismatch.” While the company’s assets are almost entirely in Bitcoin, its debts and dividend obligations are in US dollars. This means the strategy could face pressure to sell Bitcoin — perhaps at a loss — if it can’t raise enough new capital in a downturn. S&P warned that if bitcoin prices fall and investor appetite weakens, the firm could face a liquidity crunch.
A major constraint on the company’s rating is its “negative total adjusted capital.” Under S&P’s methodology, Bitcoin is excluded from equity calculations due to its volatility and undeveloped market risks. The accounting treatment leaves the strategy with a lack of capital on paper, even though it owns billions in digital assets.
Preferred stock dividends also pose a potential challenge. The company owes more than $640 million annually in dividends to four classes of preferred equity. While the strategy could delay these payments, doing so would trigger management sanctions such as giving away preferred board seats to shareholders. Two of its preferred classes also earned deferred payment interest at a higher rate. The strategy said it plans to fund dividends through new equity sales, not through the sale of bitcoin.
Despite the risks, S&P assigned a stable outlook, citing the company’s past success in managing debt maturities and maintaining access to capital markets. The next major maturity date isn’t until 2028, which gives the company some breathing room, as long as the price of bitcoin doesn’t collapse.
S&P said it could cut the rating if the company’s access to capital is constrained or if risks around debt repayment increase. An upgrade, however, is unlikely in the near term unless the strategy significantly boosts its dollar liquidity and reduces its reliance on convertible debt to fund operations.
In S&P’s eyes, the fortunes of the strategy will remain tightly tied to Bitcoin. As long as the case remains, so do the risks.
MSTR shares were up nearly 3% on Monday with a weekend rally in Bitcoin prices to $115,500.
