Core Scientific (CORZ) will hand over about 18% of its crypto mining rigs, or 27,403 machines, to lender NYDIG in exchange for extinguishing $38.6 million in debt, according to a Feb. 2 filing with the bankruptcy court for the southern district of Texas.

Core, which as of the end of December 2022 operated 153,000 machines for its self-mining operations, filed for Chapter 11 bankruptcy protection late last year. The NYDIG deal has yet to be approved by the bankruptcy court judge.

The bear market in crypto has taken a toll on the mining industry, particularly on leveraged firms, as high energy prices coupled with a low bitcoin price have led to consolidation and capitulation. Core borrowed about $77.5 million from NYDIG to buy mining equipment starting October 2020, but has essentially stopped paying off the loans since the end of the third quarter.

The agreement will bring "substantial benefits" because the value of the machines is lower than the outstanding principal and the machines are no longer needed for its operations, Core said in the filing. Prices for bitcoin mining rigs have dropped about 85% in the past year, according to data from Luxor Technologies.

On Jan. 31, Core agreed to borrow $70 million from investment bank B. Riley. On Feb. 1, NYDIG filed a reservation of rights letter with the court saying it might object to the financing if Core didn't finalize an agreement over its own debt. The lender has previously argued that it isn't well-protected against the diminution of the value of the machines under the post-bankruptcy financing arrangements.

About 60% of the machines posted as collateral for the NYDIG loans are Bitmain Antminer S19s, an old model, whereas around the rest are newer Antminer S19j Pros.

Earlier in 2023, Core moved to reject its hosting contracts with Celsius Mining, which is also bankrupt.