Michael Saylor built a Bitcoin treasury empire on the back of creative capital markets. Now some of the investors who funded that empire are sitting across the table from bankers, trying to figure out how to get out.

Distressed-debt funds are in active negotiations to swap Strategy’s preferred shares for alternative securities, according to people familiar with the discussions. The talks signal a meaningful shift in how sophisticated investors view the risk profile of Strategy Inc., the company formerly known as MicroStrategy.

How a creative funding machine hit a wall

Strategy has issued more than $10B in perpetual preferred equity, making it one of the more unusual capital structures in public markets today. The pitch was simple: buy preferred shares, collect a steady dividend, and gain indirect exposure to Bitcoin’s upside through the company’s treasury holdings.

The series drawing the most attention is STRC, Strategy’s Stretch Variable Rate Perpetual Preferred Equity. These shares were issued at a $100 par value. They’ve been trading in the $85 to $90 range, a discount steep enough to push effective yields as high as 13.6%, well above the stated dividend rate of around 11.5%.

Strategy’s combined annual obligations across interest payments and preferred dividends are now approaching or exceeding $1B per year. The company has continued issuing new preferred shares through at-the-market programs even as existing ones trade in distress territory.

What distressed-debt funds see that others might miss

A swap, in this context, would mean exchanging existing preferred shares for a different class of security, potentially one with better seniority in the capital structure, a different maturity profile, or adjusted economic terms. The specifics of what’s being proposed haven’t been disclosed.

STRC hit all-time lows around June 2026, a period that coincided with broader market concerns about Bitcoin prices. Strategy’s entire financial architecture depends on Bitcoin maintaining or growing in value. If Bitcoin stagnates or falls, the math on those $1B-plus annual obligations gets harder, not easier.

Perpetual preferred equity sits below debt in the capital structure. In a liquidation scenario, debt holders get paid first. Preferred shareholders get what’s left, if anything.

What this means for Strategy and the broader Bitcoin treasury model

Strategy pioneered the corporate Bitcoin treasury playbook. Several companies have tried to replicate it, raising debt and equity to buy Bitcoin and holding it as a primary asset.

For investors holding STRC or Strategy’s other preferred series, the ongoing negotiations cut both ways. On one hand, distressed funds entering the picture can accelerate restructuring that might restore value or at least clarify the path forward. On the other hand, their participation confirms that these securities have moved into a risk category most retail investors weren’t originally anticipating when they bought a preferred share from a company sitting on a massive Bitcoin reserve.

If Strategy, the largest and most visible practitioner of this approach, requires a capital restructuring on its preferred equity, it will force a reassessment of similar structures at smaller companies with less liquidity and fewer options. Strategy at least has scale and name recognition working in its favor during any negotiation. A company with a fraction of its Bitcoin holdings and a comparable preferred equity obligation has much less leverage at the table.