Digital Credit Monthly.

STRC's major selloff in June was catalyzed by Strategy using a portion of their cash reserve to retire convertible debt. The market's reaction to the reduction of cash was very negative, with the prefs trading off significantly. To rectify the situation, Strategy began building cash for their USD reserve and USD cash. The result was that the prefs recovered. The cash position is now almost equal to the total converts outstanding on their balance sheet. The securities discussed in this report are perpetual preferred equity of Strategy Inc.; they carry no maturity, no holder redemption right, and rank junior to Strategy's convertible notes.

Saylor has repeatedly mentioned that they are prioritizing the credit in the short term in order to maximize common shareholder equity in the long term. The cash acts like a drag on the performance of the common, or de-amplification. In strict terms, the cash reduces the Bitcoin per share for common MSTR. We believe, however, that the net effect of holding extra cash in order to return STRC to its stated amount will be beneficial to MSTR. In order to continue issuing STRC and increasing amplification during Bitcoin bull markets, STRC's credit quality must remain strong, and that is what the cash is providing.

Reading down the stack, STRF has Bitcoin NAV of 12.9x its cumulative claims on the netted basis; Bitcoin NAV equals those claims at a BTC price of roughly $6,034. STRC, second in line, has 8.1x, with NAV equal to claims at roughly $9,613. STRK has 5.5x, equal at roughly $14,091, and STRD, the most junior, 4.3x, equal at roughly $18,172. The gross column, which puts the full $6.71B of converts ahead of the preferreds, is the baseline. The netted column assumes the USD Reserve and cash are applied against the converts; because Strategy holds the reserve to fund preferred dividends and debt service, the same dollars cannot do both jobs, so the netted figures should be read as an upper bound rather than a base case.

Strategy did not sell STRC through its ATM in August. (Strategy did sell 4.53M shares of MSTR common stock via ATM during the Aug 24 to 30 week, unrelated to the STRC program: proceeds funded that week's BTC purchase, STRC buybacks, and STRC dividends.)

As we noted in our recent research piece, Buried in Collateral (August 2026), in our view the buyback has helped move STRC back toward its stated amount of $100. The reserve fell to $871M following May's convertible-note repurchase. STRC closed at $74.57 on June 26 and recovered to $97.33 on August 28. The chart pairs selected closes with dated reserve disclosures; it shows the recovery alongside reserve rebuilding, without attributing the price move to any single cause. STRC repurchases began during the July 20 to 26 week.

The recovery is more legible when distributions are included. One share bought at the $90 IPO price was worth $97.33 on August 28, 2026, an 8.1% price gain. Adding $11.42 in distributions already paid and a $0.50 dividend receivable brings combined value to $109.25, a 21.4% total return without reinvestment, before taxes and transaction costs. The receivable was payable August 31, after the chart cutoff. Distributions contributed more than the price gain. Strategy has stated it expects recent STRC dividends to be characterized as return of capital to the extent of a holder's basis; that treatment defers rather than eliminates tax, and after-tax results will differ by holder.

When looking across the whole suite of instruments, there has been discussion of buybacks for the other fixed-rate prefs trading below their stated amounts. Strategy stated that returning STRC to its stated amount was their main concern; as STRC approaches that objective, it is possible they begin buying back other prefs.

Once again, we highlight the fact that if Strategy were to begin buying back STRK or STRD or STRF, the trading volumes are so low that buybacks would cause volatile moves in these securities. Accretion at a discount is real, but so is the volatility a size buyer introduces into a thin book.

Strategy maintained the STRC rate at 12.00% for semi-monthly periods commencing September 16 and has stated that management does not intend to recommend a change until STRC demonstrates sustained trading at or near its $100 stated amount. We do not expect a change in the near term. The rate is set monthly and may be adjusted at Strategy's discretion.

Our core holding remains STRC, Strategy's variable-rate preferred, selected for its senior position in the capital structure relative to Strategy's other preferred and common equity, its compounding-dividend protection during any period of arrears, and restrictions preventing dividends or repurchases on junior securities while the position remains current.

Looking toward diversification, we continue to evaluate additional digital-credit preferred issuance, including Strive's SATA, as liquidity in the space develops.

On August 31 Strategy's board declared quarterly dividends on STRF, STRK, and STRD and a semi-monthly dividend on STRC, each payable September 30 to holders of record September 15. A second STRC semi-monthly dividend is payable October 15 to holders of record September 30. With T+1 settlement the ex-dividend date coincides with the record date, so September 15 is the shared date across the complex, and STRC trades ex again on September 30.

Under its prospectus, each share of STRK is convertible into 0.10 shares of MSTR class A common stock, an initial conversion price of $1,000 per MSTR share against its $100 stated amount. With MSTR trading far below that conversion price, STRK's as-converted value is a small fraction of its market price, meaning the position today is compensated almost entirely through its coupon rather than embedded equity optionality. We do not view it as an arbitrage opportunity at current levels.

Treasury's regular buyback program serves a different purpose than the program of the early 2000s. The 2000 to 2002 program retired $67.5B across 45 operations during the surplus era. From May 29, 2024 through August 25, 2026, the current program accepted $451.547B (approximately $452B) across 154 operations with published results, excluding small-value tests. Its purpose is liquidity support and cash management, not net debt reduction. On September 9, the maximum size of long-end liquidity-support operations rises from $2B to at least $4B per operation.

The 30 year Treasury par yield sits at 5.22% and the 10 year at 4.73%, both near the top of their five year ranges. Long-term money is expensive. That is the backdrop against which mortgage rates have stayed elevated, and against which any fixed-rate pref has to be judged.

Against that, STRF at a 10% rate on $5.10B of claims actually has a reasonable yield for the seniority it carries. The comparison worth making is not pref against pref, it is pref against the long end of the curve, and on that basis the senior digital credit instruments are still compensating well for the duration and the credit an allocator takes on.

BTC's rally through August pulled it further above its 200-week moving average, and the shorter-term averages have crossed above the longer-term ones. Both are trend-following signals rather than predictive ones, but they matter here for a structural reason: coverage on every pref in the complex is a direct function of BTC NAV, so a sustained move higher widens the cushion under all four securities at once.