Bitcoin miner Core Scientific files for Chapter 11
March 2023 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING
Financier Worldwide Magazine
March 2023 Issue
Yet another victim of the ‘crypto winter’, bitcoin (BTC) miner Core Scientific, Inc., following a comprehensive review of potential alternatives and exhaustive discussions with its stakeholders, has filed for bankruptcy protection in order to implement a restructuring support agreement (RSA).
Core Scientific is one of a number of crypto firms to have filed for bankruptcy protection in recent months, as well as being one of several crypto mining operations that have faltered financially.
To implement the comprehensive restructuring transaction contemplated by the RSA, the company has filed voluntary petitions for reorganisation under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the Southern District of Texas.
According to the filing, Core Scientific has approximately 1000 to 5000 creditors and its estimated assets are worth between $1bn to $10bn. The company has stated that it plans to move swiftly through the restructuring process.
The Chapter 11 filing was necessitated by a decline in the company’s operating performance and liquidity suffering from the prolonged decrease in the price of bitcoin, the increase in electricity costs necessary to power the company’s data centres, as well as the failure by certain of its hosting customers to honour their payment obligations.
In response to these factors, Core Scientific has actively taken steps to decrease monthly costs, delay construction expenses, reduce and delay capital expenditures and increase hosting profitability.
In a statement, the company said that during the Chapter 11 process and upon emergence, it would continue to operate its existing self-mining and hosting operations, which remain significantly cash flow positive on a debt-free basis. The company also stated that it is committed to operating normally during the implementation of its restructuring and remains dedicated to providing hosting services and self-mining in its state-of-the-art data centres.
In connection with the RSA, a debtor-in-possession (DIP) facility of up to $56m has been agreed to support the syndication of up to an additional $19m in new money DIP facility loans to all holders of convertible notes. These funds, along with ongoing cash generated from operations, are anticipated to provide the necessary financing to effectuate the planned restructuring, facilitate the emergence from Chapter 11, and cover the fees and expenses of legal and financial advisers.
The RSA is subject to a ‘fiduciary out’ for Core Scientific to pursue better alternatives. In addition, as expected, the restructuring will reduce the company’s funded indebtedness by hundreds of millions of dollars and reduce annual interest expense by tens of millions of dollars.
Weil, Gotshal & Manges LLP is acting as Core Scientific’s legal adviser, with AlixPartners, LLP as financial adviser and PJT Partners LP as investment banker.
One of the largest publicly traded blockchain computing data centre providers and miners of digital assets in North America, Core Scientific has operated blockchain computing data centres in North America since 2017, using its facilities and intellectual property portfolio for colocated digital asset mining and self-mining.
In consultation with its advisers and a special committee of the board of directors, Core Scientific has determined that the restructuring contemplated by the RSA represents the optimal path forward and best positions the company for long-term success.
© Financier Worldwide
BY
Fraser Tennant