Bitcoin Miner Core Scientific Files for Bankruptcy, Expects Support From Some Debt Holders

The publicly traded miner expects support from some of the holders of its convertible notes in a restructuring deal.

AccessTimeIconDec 21, 2022 at 9:17 a.m. UTC
Updated May 9, 2023 at 4:04 a.m. UTC

Core Scientific (CORZ), one of the largest bitcoin (BTC) miners by computing power, filed for bankruptcy protection on Wednesday and reached a deal with some of its lenders to restructure its debt.

The company filed for Chapter 11 at Southern District of Texas bankruptcy court as crypto winter continues to take its toll on the industry. The miner's estimated liabilities are between $1 billion-$10 billion, according to the filing. It has around 1,000-5,000 creditors, with the largest unsecured claim coming from investment bank B. Riley.

The miner's estimated assets are between $1 billion-$10 billion, according to the filing. At the end of the third quarter, Core Scientific's assets stood at $1.4 billion, whereas its liabilities were about $1.3 billion, according to its earnings report.

The bankruptcy of Core Scientific, which accounts for about 10% of computing power on the bitcoin network, operating 143,000 mining rigs and hosting another 100,000 is the biggest one yet and is set to send shockwaves in an already crumbling industry.

Prepackaged bankruptcy

Core Scientific reached an agreement with some of its creditors, in what appears to be a prepackaged bankruptcy. In a prepackaged bankruptcy, the debtor reaches some sort of agreement with its debtee before officially filling for bankruptcy.

The miner expects support from some of its convertible noteholders in the form of two debtor-in-possession (DIP) facilities, totaling up to $75 million, Core Scientific said in a press release. This support will help it go through the bankruptcy process, which it intends to do "swiftly," the press release said. The miner had $544 million in convertible notes outstanding at the end of the third quarter.

Existing convertible note holders will "equitize their debt into a significant majority of the common stock of the reorganized company," the mining firm said. Other holders of general unsecured claims and existing common shareholders will also "receive meaningful recoveries in the form of reorganized common stock and warrants" under the restructuring deal.

The company first warned of the risk of bankruptcy in late October, and said it wouldn't be paying some of its loan installments, sending its shares plummeting about 80% on Nasdaq. In November, it reiterated that it may run out of money by the end of this year.

Last week, investment bank B. Riley proposed a $72 million financing plan, including $40 million of financing "immediately" and with "zero contingencies." However, the rest of the funding would be made available once bitcoin hit $18,500. Core Scientific has $42 million outstanding to the bank.

Instead, Core Scientific expects to seal a deal with a group representing "more than 50% of the holders of its convertible notes" that will grant it $56 million in a DIP facility. The noteholders have agreed to syndicate up to "$19 million in new money DIP Facility loans to all holders of convertible notes," the Wednesday press release said.

"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 advisors," the miner said.

Core Scientific's operations "remain significantly cash flow positive on a debt-free basis," the press release said.

Crypto winter devastates miners

Core Scientific is one of several miners struggling to keep afloat as rising energy prices increase costs, while stubbornly low bitcoin prices slash revenue. Compute North, another major firm in the space, filed for Chapter 11 bankruptcy in late September.

Iris Energy (IREN) had to unplug about 72% of its computing power that was tied to just over $100 million of loans that it defaulted on. The loans were held by special-purpose non-recourse vehicles. In November, Argo Blockchain's (ARBK) deal to sell $27 million of equity to fund operations fell through and the company was subsequently downgraded by two analysts. Greenidge Generation (GREE) on Tuesday announced a debt restructuring deal with its lender NYDIG, but could still run out of cash in two months if it doesn't secure additional funding.

Core Scientific has also been affected by the bankruptcy of lender Celsius Network's mining arm, one of its biggest clients, and lender BlockFi, to which it owes $54 million. Celsius Mining filed for Chapter 11 bankruptcy in July and in September sued Core Scientific, claiming that it violated automatic stay terms. Core Scientific claims Celsius owes it $5.2 million as of Sept. 30. BlockFi filed for Chapter 11 bankruptcy protection in late November, one of many victims of crypto exchange FTX's implosion.

Core Scientific was running 243,000 machines in its facilities as of the end of October, split between 14.4 exahash per second (EH/s) of bitcoin self-mining hashrate, and 10 EH/s of hosted machines for other firms, according to the filing. That's about 10% of the global hashrate, which stands at around 243 EH/s as of the time of writing.

The company went public in Jan. 20 after merging with Power & Digital Infrastructure Acquisition in a special purpose acquisition company (SPAC) transaction.

Shares of Core Scientific were down over 27% at $0.1519, during pre-market trading.

UPDATE (Dec. 21, 12:25 UTC): Adds details on the debt restructuring deal with noteholders, numbers from Q3 earnings report.


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