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Long-term Debt | 12 Months Ended
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Dec. 31, 2022
Debt Disclosure [Abstract] |
Long-term Debt | (8) Long-term Debt The net carrying value of the Company’s long-term debt (in thousands) consisted of the following as of:
|  | December 31, |
|  | 2022 |  |  | 2021 |
2025 Convertible Notes |  | $ | 640,888 |  |  | $ | 637,882 |
2027 Convertible Notes |  |  | 1,033,277 |  |  |  | 1,029,263 |
2028 Secured Notes |  |  | 489,547 |  |  |  | 488,006 |
2025 Secured Term Loan |  |  | 204,688 |  |  |  | 0 |
Other long-term secured debt |  |  | 10,160 |  |  |  | 0 |
Total |  | $ | 2,378,560 |  |  | $ | 2,155,151 |
Convertible Senior Notes In December 2020, the Company issued $650.0 million aggregate principal amount of 2025 Convertible Notes in a private offering. The 2025 Convertible Notes are senior unsecured obligations of the Company and bear interest at a fixed rate of 0.750% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2021. Holders of the 2025 Convertible Notes may receive additional interest under specified circumstances as outlined in the indenture relating to the issuance of the 2025 Convertible Notes (the “2025 Convertible Notes Indenture”). The 2025 Convertible N otes will mature on December 15, 2025, unless earlier converted, redeemed or repurchased in accordance with their terms. The total net proceeds from the 2025 Convertible Notes offering, after deducting initial purchaser discounts and issuance costs, were approximately $634.7 million. In February 2021, the Company issued $1.050 billion aggregate principal amount of 2027 Convertible Notes in a private offering. The 2027 Convertible Notes are senior unsecured obligations of the Company and do not bear regular interest. However, holders of the 2027 Convertible Notes may receive special interest under specified circumstances as outlined in the indenture relating to the issuance of the 2027 Convertible Notes (the “2027 Convertible Notes Indenture”). Any special interest is payable semiannually in arrears on February 15 and August 15 of each year, beginning on August 15, 2021. The 2027 Convertible Notes will mature on February 15, 2027, unless earlier converted, redeemed, or repurchased in accordance with their terms. The total net proceeds from the 2027 Convertible Notes offering, after deducting initial purchaser discounts and issuance costs, were approximately $1.026 billion. The 2025 Convertible Notes and 2027 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations and rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries. The Convertible Notes are convertible into shares of the Company’s class A common stock at initial conversion rates of 2.5126 shares and 0.6981 shares per $1,000 principal amount of Convertible Notes for the 2025 Convertible Notes and 2027 Convertible Notes, respectively (equivalent to an initial conversion price of approximately $397.99 per share and $1,432.46 per share of class A common stock for the 2025 Convertible Notes and 2027 Convertible Notes, respectively). The conversion rates are subject to customary anti-dilution adjustments. In addition, following certain events that may occur prior to the respective maturity dates or if the Company delivers a notice of redemption, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption, as the case may be, in certain circumstances as provided in the 2025 Convertible Notes Indenture and the 2027 Convertible Notes Indenture (collectively, the “Convertible Notes Indentures”), respectively. As of December 31, 2022, the maximum number of shares into which the Convertible Notes could be potentially converted if the conversion features are triggered are 1,633,190 and 733,005 shares for the 2025 Convertible Notes and 2027 Convertible Notes, respectively. Prior to June 15, 2025 and August 15, 2026 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively, the Convertible Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2021 and June 30, 2021 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively (and only during such calendar quarter), if the last reported sale price of the Company’s class A common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Convertible Notes Indentures) per $1,000 principal amount of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s class A common stock and the applicable conversion rate on each such trading day; (3) if the Company calls any or all of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; and (4) upon occurrence of specified corporate events as described in the Convertible Notes Indentures. On or after June 15, 2025 or August 15, 2026 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity dates of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, holders may convert the 2025 Convertible Notes or 2027 Convertible Notes, respectively, at any time. Upon conversion of the Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of the Company’s class A common stock, or a combination of cash and shares of class A common stock, at the Company’s election. Prior to December 20, 2023 or February 20, 2024 for the 2025 Convertible Notes and 2027 Convertible Notes, respectively, the Company may not redeem the Convertible Notes. The Company may redeem for cash all or a portion of the 2025 Convertible Notes or 2027 Convertible Notes, at its option, on or after December 20, 2023 or February 20, 2024, respectively, if the last reported sale price of the Company’s class A common stock has been at least 130% of the conversion price of the 2025 Convertible Notes or 2027 Convertible Notes, respectively, then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides a notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The redemption price will be equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a “fundamental change,” as defined in the Convertible Notes Indentures, prior to maturity, subject to certain conditions, holders may require the Company to repurchase for cash all or any portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. The Convertible Notes Indentures contain customary terms and covenants, including that upon certain events of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding 2025 Convertible Notes or 2027 Convertible Notes, respectively, may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the 2025 Convertible Notes or 2027 Convertible Notes, respectively, to be due and payable. During the year ended December 31, 2022, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes during the first quarter of 2022 only. During the year ended December 31, 2021, the 2025 Convertible Notes were convertible at the option of the holders of the 2025 Convertible Notes during the second quarter and fourth quarter of 2021 only. During the year ended December 31, 2020, the 2025 Convertible Notes were not convertible at any time. During the years ended December 31, 2022 and 2021, the 2027 Convertible Notes were not convertible at any time. No conversions of the Convertible Notes occurred during the years ended December 31, 2022, 2021, and 2020. The Convertible Notes may be convertible in future periods if one or more of the conversion conditions is satisfied during future measurement periods. The Company incurred approximately $15.3 million and $24.2 million in customary offering expenses associated with the 2025 Convertible Notes and 2027 Convertible Notes, respectively (“issuance costs”). The Company accounts for these issuance costs as a reduction to the principal amount of the 2025 Convertible Notes and 2027 Convertible Notes, respectively, and amortizes the issuance costs to interest expense over the contractual term of the 2025 Convertible Notes and 2027 Convertible Notes, respectively, at an effective interest rate of 1.23% and 0.39%, respectively. Although the Convertible Notes each contain embedded conversion features, the Company accounts for each of the Convertible Notes in its entirety as a liability because the conversion features are indexed to the Company’s class A common stock and meet the criteria for classification in stockholders’ equity and therefore do not qualify for separate derivative accounting. As of December 31, 2022 and 2021, the net carrying value of the Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets. The following is a summary of the Company’s convertible debt instruments as of December 31, 2022 (in thousands):
|  | December 31, 2022
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2025 Convertible Notes |  | $ | 650,000 |  |  | $ | (9,112 | ) |  | $ | 640,888 |  |  | $ | 364,000 |  |  | Level 2
2027 Convertible Notes |  |  | 1,050,000 |  |  |  | (16,723 | ) |  |  | 1,033,277 |  |  |  | 394,800 |  |  | Level 2
Total |  | $ | 1,700,000 |  |  | $ | (25,835 | ) |  | $ | 1,674,165 |  |  | $ | 758,800 |  |  |
The following is a summary of the Company’s convertible debt instruments as of December 31, 2021 (in thousands):
|  | December 31, 2021
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2025 Convertible Notes |  | $ | 650,000 |  |  | $ | (12,118 | ) |  | $ | 637,882 |  |  | $ | 1,056,679 |  |  | Level 2
2027 Convertible Notes |  |  | 1,050,000 |  |  |  | (20,737 | ) |  |  | 1,029,263 |  |  |  | 774,375 |  |  | Level 2
Total |  | $ | 1,700,000 |  |  | $ | (32,855 | ) |  | $ | 1,667,145 |  |  | $ | 1,831,054 |  |  |
The fair value of the Convertible Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2). For the years ended December 31, 2022 and 2021, interest expense related to the Convertible Notes was as follows (in thousands):
|  | Year Ended December 31, 2022 |  |  | Year Ended December 31, 2021 |
|  | Contractual |  |  | Amortization of |  |  |  |  |  |  | Contractual |  |  | Amortization of |  |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |  |  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2025 Convertible Notes |  | $ | 4,875 |  |  | $ | 3,006 |  |  | $ | 7,881 |  |  | $ | 4,875 |  |  | $ | 2,970 |  |  | $ | 7,845 |
2027 Convertible Notes |  |  | 0 |  |  |  | 4,014 |  |  |  | 4,014 |  |  |  | 0 |  |  |  | 3,433 |  |  |  | 3,433 |
Total |  | $ | 4,875 |  |  | $ | 7,020 |  |  | $ | 11,895 |  |  | $ | 4,875 |  |  | $ | 6,403 |  |  | $ | 11,278 |
The Company paid $4.9 million and $4.9 million, respectively, in interest expense related to the 2025 Convertible Notes during the years ended December 31, 2022 and 2021. The Company has not paid any special interest expense related to the 2027 Convertible Notes to date. Accounting for the 2025 Convertible Notes prior to the adoption of ASU 2020-06 As discussed in Note 3, Recent Accounting Standards, to the Consolidated Financial Statements, the Company adopted ASU 2020-06 effective January 1, 2021. Prior to the adoption of ASU 2020-06, the Company separated the 2025 Convertible Notes into liability and equity components. The initial carrying amount of the liability component was determined by measuring the fair value of a similar debt instrument without any associated conversion features. The carrying amount of the equity component (representing the conversion option) was $153.5 million and was determined by deducting the fair value of the liability component from the par value of the 2025 Convertible Notes. The equity component was recorded in “additional paid-in-capital” in the Company’s Consolidated Balance Sheet. Prior to the adoption of ASU 2020-06, the Company allocated the $15.3 million of issuance costs incurred to the liability and equity components of the 2025 Convertible Notes based on their relative values. Issuance costs attributable to the liability component of $11.6 million were taken as a reduction to the principal amount of the 2025 Convertible Notes. Issuance costs attributable to the equity component of $3.6 million were netted against the equity component of the 2025 Convertible Notes in “additional paid-in-capital” in the Company’s Consolidated Balance Sheet. The excess of the principal amount of the liability component over its carrying amount (the “debt discount”) and the issuance costs attributable to the liability component were amortized to interest expense at an effective interest rate of 6.82%. As of December 31, 2020, the net carrying amount of the liablity component of the 2025 Convertible Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheet as follows (in thousands):
|  | December 31, |
|  | 2020 |
Principal |  | $ | 650,000 |
Unamortized debt discount |  |  | (152,075 | )
Unamortized issuance costs |  |  | (11,559 | )
Net carrying amount of debt |  | $ | 486,366 |
As of December 31, 2020, the net carrying amount of the equity component of the 2025 Convertible Notes was classified as permanent equity and included in “additional paid in capital” in the Company’s Consolidated Balance Sheet as follows (in thousands):
|  | December 31, |
|  | 2020 |
Debt discount for conversion option |  | $ | 153,527 |
Issuance costs allocated to equity |  |  | (3,602 | )
Deferred tax liability, net of deferred tax asset, related to debt discount and issuance costs |  |  | (42,115 | )
Net carrying amount of equity |  | $ | 107,810 |
For the year ended December 31, 2020, interest expense related to the 2025 Convertible Notes was as follows (in thousands):
|  | Year Ended December 31, |
|  | 2020 |
Contractual interest expense |  | $ | 271 |
Amortization of debt discount |  |  | 1,452 |
Amortization of issuance costs allocated to debt |  |  | 91 |
Total interest expense |  | $ | 1,814 |
The Company did not pay any interest expense related to the 2025 Convertible Notes during the year ended December 31, 2020. Senior Secured Notes On June 14, 2021, the Company issued $500.0 million aggregate principal amount of 2028 Secured Notes. The 2028 Secured Notes were sold under a purchase agreement, dated as of June 8, 2021, entered into by and among the Company, MicroStrategy Services Corporation, a wholly owned subsidiary of the Company (the “Guarantor”), and Jefferies LLC, for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act. The terms of the 2028 Secured Notes are governed by an indenture, dated as of June 14, 2021 (the “2028 Secured Notes Indenture”), among the Company, the Guarantor, and U.S. Bank National Association, as trustee and collateral agent. The 2028 Secured Notes are unconditionally guaranteed, jointly and severally, on a senior secured basis by the Guarantor and certain subsidiaries of the Company (excluding MacroStrategy) that may be formed or acquired on or after June 14, 2021 (collectively, the “Subsidiary Guarantors”). The 2028 Secured Notes bear interest at a fixed rate of 6.125% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The 2028 Secured Notes have a stated maturity date of June 15, 2028, unless earlier redeemed or repurchased in accordance with their terms and subject to a springing maturity date of September 15, 2025 or November 16, 2026 as discussed further below. The total net proceeds from the 2028 Secured Notes, after deducting initial purchaser discounts and issuance costs, were approximately $487.2 million. The 2028 Secured Notes and the related guarantees are secured, on a senior secured basis with the Company’s existing and future senior indebtedness, by a security interest in substantially all of the Company’s and the Subsidiary Guarantors’ assets (the “Collateral”). The Collateral includes any bitcoins or other digital assets acquired by the Company or a Subsidiary Guarantor on or after June 14, 2021, but excludes bitcoins held by MacroStrategy and certain other excluded assets. As of December 31, 2022, approximately 14,890 of the bitcoins held by the Company serve as part of the Collateral. MacroStrategy is the Company’s subsidiary formed to hold bitcoins and digital assets that are not included in the Collateral, including bitcoins acquired before June 14, 2021, bitcoins that MacroStrategy acquired using the proceeds from the 2025 Secured Term Loan, and bitcoins purchased by MacroStrategy from contributions made to it by the Company with the proceeds from sales of the Company’s class A common stock, such as sales of the Company’s class A common stock pursuant to the two equity offerings described in Note 13, At-the-Market Equity Offerings, to the Consolidated Financial Statements. The 2028 Secured Notes and the related guarantees are the general senior secured obligations of the Company and the Subsidiary Guarantors and rank pari passu in right of payment with the Company’s and the Subsidiary Guarantors’ existing and future senior indebtedness, are senior in right of payment to all future subordinated indebtedness of the Company and the Subsidiary Guarantors, and are effectively senior to any existing and future unsecured indebtedness of the Company and the Subsidiary Guarantors (including the Convertible Notes) to the extent of the value of the Collateral (after giving effect to the sharing of such Collateral with holders of equal or prior ranking liens on the Collateral). The 2028 Secured Notes and the guarantees are: (i) secured on a first priority basis by liens on the Collateral (subject to certain permitted liens and certain other exceptions, as provided in the 2028 Secured Notes Indenture) or to the extent there is outstanding ABL Indebtedness (as defined in the 2028 Secured Notes Indenture), secured on a first priority basis by the Notes Priority Collateral (as defined in the 2028 Secured Notes Indenture) and on a second priority basis by liens on the ABL Priority Collateral (as defined in the 2028 Secured Notes Indenture) (subject to certain permitted liens and certain other exceptions), (ii) effectively subordinated to any future ABL Indebtedness to the extent of the value of the ABL Priority Collateral securing such future ABL Indebtedness, (iii) effectively subordinated to any existing and future indebtedness of the Company or any Subsidiary Guarantor that is secured by liens on assets of the Company or any Subsidiary Guarantor that do not constitute a part of the Collateral, and (iv) structurally subordinated to any existing and future indebtedness and other liabilities of MacroStrategy and any other Company subsidiaries that are not Subsidiary Guarantors, other than intercompany indebtedness and liabilities owed to the Company or a Subsidiary Guarantor. At any time and from time to time prior to June 15, 2024, the Company may redeem some or all of the 2028 Secured Notes at a redemption price equal to 100% of the principal amount of the 2028 Secured Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a “make-whole” premium as set forth in the 2028 Secured Notes Indenture. At any time and from time to time on or after June 15, 2024, the Company may redeem some or all of the 2028 Secured Notes at the redemption prices described in the 2028 Secured Notes Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior to June 15, 2024, but not more than once during each consecutive twelve-month period, the Company may redeem up to 10% of the aggregate principal amount of the 2028 Secured Notes at a redemption price equal to 103% of the principal amount of the 2028 Secured Notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time prior to June 15, 2024, the Company may redeem, on one or more occasions, up to 40% of the aggregate principal amount of the 2028 Secured Notes with the proceeds of certain equity offerings, at a redemption price equal to 106.125% of the principal amount of the 2028 Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If the Company experiences a Change of Control or Fundamental Change (each as defined in the 2028 Secured Notes Indenture), the Company may be required to offer to repurchase the 2028 Secured Notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. In certain circumstances, the Company must use certain of the proceeds from a sale of assets to make an offer to repurchase 2028 Secured Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. The 2028 Secured Notes include a springing maturity feature that will cause the stated maturity date to spring ahead to: (1) September 15, 2025 (the “First Springing Maturity Date”), unless on the First Springing Maturity Date (i) the Company has Liquidity (as defined in the 2028 Secured Notes Indenture) in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of, and accrued interest on, the 2025 Convertible Notes or (ii) less than $100,000,000 of the aggregate principal amount of the 2025 Convertible Notes remains outstanding, (2) November 16, 2026 (the “Second Springing Maturity Date”), unless on the Second Springing Maturity Date (i) the Company has Liquidity in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of, and accrued interest on, the 2027 Convertible Notes or (ii) less than $100,000,000 of the aggregate principal amount of the 2027 Convertible Notes remains outstanding, or (3) the date (such date, an “FCCR Springing Maturity Date”) that is 91 days prior to the maturity date of any FCCR Convertible Indebtedness (as defined in the 2028 Secured Notes Indenture), unless on the FCCR Springing Maturity Date (i) the Company has Liquidity in excess of 130% of the amount required to pay in full in cash the then outstanding aggregate principal amount of and accrued interest on such FCCR Convertible Indebtedness or (ii) less than $100,000,000 of the aggregate principal amount of such FCCR Convertible Indebtedness remains outstanding. As of December 31, 2022, for purposes of calculating Liquidity, the Company and its Restricted Subsidiaries (as defined in the 2028 Secured Notes Indenture) owned approximately 57,460 unencumbered Existing Digital Assets (as defined in the 2028 Secured Notes Indenture). The 2028 Secured Notes Indenture contains certain covenants with which the Company must comply, including covenants with respect to limitations on (i) additional indebtedness, (ii) liens, (iii) certain payments and investments, (iv) the ability to merge or consolidate with another person, or sell or otherwise dispose of substantially all the Company’s assets, and (v) certain transactions with affiliates. The Company was in compliance with its debt covenants as of December 31, 2022. The Company incurred approximately $12.8 million in customary offering expenses associated with the 2028 Secured Notes. The Company accounts for these issuance costs as a reduction to the principal amount of the 2028 Secured Notes and amortizes the issuance costs to interest expense over the contractual term of the 2028 Secured Notes at an effective interest rate of 6.58%. As of December 31, 2022 and 2021, the net carrying value of the 2028 Secured Notes was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets. The following is a summary of the 2028 Secured Notes as of December 31, 2022 (in thousands):
|  | December 31, 2022
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2028 Secured Notes |  | $ | 500,000 |  |  | $ | (10,453 | ) |  | $ | 489,547 |  |  | $ | 369,800 |  |  | Level 2
The following is a summary of the 2028 Secured Notes as of December 31, 2021 (in thousands):
|  | December 31, 2021
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2028 Secured Notes |  | $ | 500,000 |  |  | $ | (11,994 | ) |  | $ | 488,006 |  |  | $ | 502,530 |  |  | Level 2
The fair value of the 2028 Secured Notes is determined using observable market data other than quoted prices, specifically the last traded price at the end of the reporting period of identical instruments in the over-the-counter market (Level 2). For the years ended December 31, 2022 and 2021, interest expense related to the 2028 Secured Notes was as follows (in thousands):
|  | Year Ended December 31, 2022 |  |  | Year Ended December 31, 2021 |
|  | Contractual |  |  | Amortization of |  |  |  |  |  |  | Contractual |  |  | Amortization of |  |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |  |  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2028 Secured Notes |  | $ | 30,625 |  |  | $ | 1,541 |  |  | $ | 32,166 |  |  | $ | 16,674 |  |  | $ | 798 |  |  | $ | 17,472 |
The Company paid $30.6 million and $15.4 million, respectively, in interest expense related to the 2028 Secured Notes during the years ended December 31, 2022 and 2021. Secured Term Loan On March 23, 2022, MacroStrategy LLC, a wholly-owned subsidiary of the Company, entered into a Credit and Security Agreement (the “Credit and Security Agreement”) with Silvergate pursuant to which Silvergate issued the $205.0 million 2025 Secured Term Loan to MacroStrategy. The 2025 Secured Term Loan is a senior secured obligation of MacroStrategy and bears interest at a floating rate equal to the Secured Overnight Financing Rate 30 Day Average, as published by the Federal Reserve Bank of New York’s website, plus 3.70%, with a floor of 3.75%, with interest payable monthly in arrears beginning May 2022. The 2025 Secured Term Loan will mature on March 23, 2025, unless earlier prepaid or repaid in accordance with the terms of the Credit and Security Agreement. The total net proceeds from the 2025 Secured Term Loan, after deducting lender fees and third-party costs, were approximately $204.6 million. Under the terms of the Credit and Security Agreement, the 2025 Secured Term Loan proceeds may be used (i) by MacroStrategy to purchase bitcoins, (ii) by MacroStrategy to pay fees, interest, and expenses related to the 2025 Secured Term Loan transaction, or (iii) for MacroStrategy’s or the Company’s general corporate purposes. The 2025 Secured Term Loan may be prepaid at any time, subject to a prepayment premium of 0.50% or 0.25% of the principal balance being prepaid, if such prepayment is made during the first year or second year, respectively, of the 2025 Secured Term Loan. There is no premium or penalty for prepayments made after March 23, 2024. In accordance with the terms of the Credit and Security Agreement, the 2025 Secured Term Loan was collateralized at closing by bitcoin with a value of approximately $820.0 million placed in a collateral account (the “Bitcoin Collateral Account”) with a custodian mutually authorized by Silvergate and MacroStrategy. While the 2025 Secured Term Loan is outstanding, MacroStrategy is required to maintain a loan to collateral value ratio (“LTV Ratio”) of less than 50% (the “Maximum LTV Ratio”). As a result, MacroStrategy is required to maintain more than $410.0 million of bitcoin in the Bitcoin Collateral Account, assuming the full $205.0 million of 2025 Secured Term Loan principal remains outstanding. If the price of bitcoin drops such that the LTV Ratio equals or exceeds the Maximum LTV Ratio, MacroStrategy is required to either deposit additional bitcoin in the Bitcoin Collateral Account or prepay a portion of the 2025 Secured Term Loan such that the LTV Ratio is reduced to 25% or less (or 35% or less, provided that in such case the interest rate on the 2025 Secured Term Loan will be increased by 25 basis points until such time as the LTV Ratio is reduced to 25% or less). During 2022, as the price of bitcoin declined causing the LTV Ratio to increase, MacroStrategy deposited an aggregate of 15,153 additional bitcoins into the Bitcoin Collateral Account to help ensure that the LTV Ratio remained below the Maximum LTV Ratio. As of December 31, 2022, approximately 34,619 bitcoins were held in the Bitcoin Collateral Account and approximately 82,991 bitcoins remained unencumbered at MacroStrategy. If at any time the LTV Ratio is less than 25% as a result of excess collateral in the Bitcoin Collateral Account, MacroStrategy is entitled to a return of such excess collateral so long as the LTV Ratio would not exceed 25% after giving effect to such return. Separate and apart from the requirements associated with the LTV Ratio, MacroStrategy established a $5.0 million cash reserve account (the “Reserve Account”) with Silvergate to serve as additional collateral for the 2025 Secured Term Loan. MacroStrategy is required to maintain at least $5.0 million in the Reserve Account until the last six months of the 2025 Secured Term Loan term, at which time funds in the Reserve Account may be used to make interest payments on the 2025 Secured Term Loan at MacroStrategy’s request, with the amount required to be held in the Reserve Account correspondingly reduced to the extent such payments are made. The collateral for the 2025 Secured Term Loan does not extend beyond assets in the Bitcoin Collateral Account and the Reserve Account. As of December 31, 2022, the Reserve Account is presented within “Restricted cash” in the Company’s Consolidated Balance Sheet and the Bitcoin Collateral Account is presented within “Digital assets” in the Company’s Consolidated Balance Sheet as further described in Note 4, Digital Assets, to the Consolidated Financial Statements. The 2025 Secured Term Loan is not guaranteed by any party. The Credit and Security Agreement contains customary affirmative and negative covenants for credit facilities of this type, including, among others, limitations on MacroStrategy with respect to the sale of collateral and the incurrence of liens on the collateral. The Credit and Security Agreement, however, does not restrict MacroStrategy from incurring additional debt, incurring additional liens on assets not serving as collateral for the 2025 Secured Term Loan, or selling assets not serving as collateral for the 2025 Secured Term Loan. There are no restrictions in the Credit and Security Agreement on utilizing bitcoin that is not in the Bitcoin Collateral Account. The Credit and Security Agreement has customary change-of-control provisions, providing Silvergate with a right to accelerate the 2025 Secured Term Loan in full in connection with a change of control of the Company, including the sale of all or substantially all of the Company’s or MacroStrategy’s assets. The Credit and Security Agreement also contains customary events of default with customary grace periods, as applicable. Upon an event of default, Silvergate has the right to accelerate the 2025 Secured Term Loan in full, increase the interest accrual rate by an additional 2%, and liquidate the collateral to pay the 2025 Secured Term Loan. MacroStrategy was in compliance with its debt covenants as of December 31, 2022. The Company incurred approximately $0.4 million in lender fees and third-party costs (“issuance costs”) associated with the 2025 Secured Term Loan. The Company accounts for these issuance costs as a reduction to the principal amount of the 2025 Secured Term Loan and amortizes the issuance costs to interest expense over the contractual term of the 2025 Secured Term Loan at an effective interest rate of 3.87%. As of December 31, 2022, the net carrying value of the 2025 Secured Term Loan was classified as a long-term liability in the “Long-term debt, net” line item in the Company’s Consolidated Balance Sheets. The following is a summary of the 2025 Secured Term Loan as of December 31, 2022 (in thousands):
|  | December 31, 2022
|  | Outstanding |  |  | Unamortized |  |  | Net Carrying |  |  | Fair Value
|  | Principal Amount |  |  | Issuance Costs |  |  | Value |  |  | Amount |  |  | Leveling
2025 Secured Term Loan |  | $ | 205,000 |  |  | $ | (312 | ) |  | $ | 204,688 |  |  | $ | 205,000 |  |  | Level 3
The outstanding principal amount of the 2025 Secured Term Loan approximates its fair value as of December 31, 2022 as the 2025 Secured Term Loan bears interest at a floating rate and is over-collateralized (the Company is required to maintain an LTV ratio of less than 50%). Additionally, the Company had approximately 82,991 unencumbered bitcoins that were available to be pledged as additional collateral at December 31, 2022. For the year ended December 31, 2022, interest expense related to the 2025 Secured Term Loan was as follows (in thousands):
|  | Year Ended December 31, 2022 |
|  | Contractual |  |  | Amortization of |  |  |  |  |
|  | Interest Expense |  |  | Issuance Costs |  |  | Total |
2025 Secured Term Loan |  | $ | 9,006 |  |  | $ | 103 |  |  | $ | 9,109 |
The Company paid $7.7 million in interest expense related to the 2025 Secured Term Loan during the year ended December 31, 2022. Other long-term secured debt In June 2022, the Company, through a wholly-owned subsidiary, entered into a secured term loan agreement in the amount of $11.1 million, bearing interest at an annual rate of 5.2%, and maturing in June 2027. The loan is secured by certain non-bitcoin assets of the Company that are not otherwise serving as collateral for any of the Company’s other indebtedness. As of December 31, 2022, the loan had a net carrying value of $10.6 million and an outstanding principal balance of $10.9 million, after monthly payments made under the terms of the agreement. As of December 31, 2022, $0.5 million of the net carrying value is short-term and is presented in “Current portion of long-term debt, net” in the Consolidated Balance Sheet. Maturities The following table shows the maturities of the Company’s debt instruments as of December 31, 2022 (in thousands). The principal payments related to the 2028 Secured Notes are included in the table below based on the First Springing Maturity Date of September 15, 2025, as if the springing maturity feature discussed above were triggered. As of December 31, 2022, the Company expects to be able to satisfy the requirements in the 2028 Secured Notes Indenture to avoid triggering the springing maturity feature of the 2028 Secured Notes.
Payments due by period ended December 31, |  | 2025 Convertible Notes |  |  | 2027 Convertible Notes |  |  | 2028 Secured Notes |  |  | 2025 Secured Term Loan |  |  | Other long-term secured debt |  |  | Total |
2023 |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 513 |  |  | $ | 513 |
2024 |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 539 |  |  |  | 539 |
2025 |  |  | 650,000 |  |  |  | 0 |  |  |  | 500,000 |  |  |  | 205,000 |  |  |  | 569 |  |  |  | 1,355,569 |
2026 |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 600 |  |  |  | 600 |
2027 |  |  | 0 |  |  |  | 1,050,000 |  |  |  | 0 |  |  |  | 0 |  |  |  | 8,633 |  |  |  | 1,058,633 |
Thereafter |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Total |  | $ | 650,000 |  |  | $ | 1,050,000 |  |  | $ | 500,000 |  |  | $ | 205,000 |  |  | $ | 10,854 |  |  | $ | 2,415,854 |

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