Core Scientific, one of the world’s largest Bitcoin mining companies, has been offered a lifeline to avoid bankruptcy. Finance services platform B. Riley has offered Core Scientific a $72 million debt restructuring package to help it stay afloat.
The offer comes at a time when the crypto mining industry is facing significant financial pressures due to the prolonged bear market in Bitcoin and other cryptocurrencies. Many miners have been forced to shut down their operations or sell off their hardware as prices remain low and electricity costs remain high. Core Scientific, however, is hoping that this new deal will help them stay in business and continue to mine Bitcoin profitably.
Under the terms of the agreement, B. Riley will provide Core Scientific with the first $40 million “immediately, with zero contingencies”, but that the remaining $32 million would only be lent on the guarantee that Core Scientific suspends payments to equipment lenders for as long as bitcoin remains below $18,500.
B. Riley is one of the largest creditors to Core Scientific and made the surprise announcement in an open letter to Core Scientific’s investors. In the letter, B. Riley states its view that “bankruptcy is not necessary at all”.
The letter reads:
“As one of Core Scientific’s largest creditors, this announcement took us by surprise. Bankruptcy is not the answer and would be a disservice to the Company’s investors. It will destroy value for the Company’s shareholders, reduce potential recoveries for the Company’s lenders, deplete its limited resources and create massive uncertainty for all its stakeholders.”
The letter lays out a model suggested by B. Riley’s analyst Lucas Pipes who states:
“adjusted for current metrics, even at a Bitcoin price of $18,000, Core Scientific can generate Adjusted EBITDA of ~$140 million. Additionally, if the company builds out the Denton, Texas facility for an incremental $40 million of capital, that could add an additional $25 million of EBITDA, resulting in a run rate EBITDA of ~$165 million.”
“On top of that, every $1,000 increase in the price of Bitcoin would likely add up to $20 million of EBITDA—meaning that if the price of Bitcoin were to increase to $20,000, Adjusted EBITDA could be over $200 million on a run-rate basis. If Bitcoin prices return to $24,500, we estimate that Core Scientific will generate nearly $275 million of Adjusted EBITDA to service creditors.”
The letter ends by saying that “Time is of the essence” and that B. Riley is ready to “work with all stakeholders to achieve the best outcome under the circumstances.” It is signed by Bryant Riley.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.