Bitcoin Mining Firm Core Scientific Receives $72M Bailout from B. Riley
B. Riley confirms granting $72M financing to save Core Scientific from the bankruptcy filing. The December 14 announcement indicated the financial service firm would inject $72M to guarantee value preservation for the stakeholders.
Financing Agreement to Save Core Scientific from Bankruptcy
An earlier address by B. Riley expressed regret that Core Scientific was confronting a self-imposed liquidity crisis. B. Riley’s representative admitted that inaction from lenders would plunge the Bitcoin miner into bankruptcy. Such an occurrence would erode the stakeholders’ value and obligations owed to creditors.
The financing agreement released on December 14 echoed the lender’s earlier statement indicating that Core Scientific owed $42M. The agreement outlined that B. Riley would advance an initial $40M that would not attract contingencies. The lender indicated that it would advance an additional $32M provided the mining firm will freeze payments to its equipment lenders whenever Bitcoin exchanges below the $18500 level.
Core Scientific Challenges
B. Riley restated that Core Scientific was facing an uncertain future since Bitcoin prices have been stuck below $18500 since November 9, when it declined by 14% within 24 hours.
The assessment by B. Riley attributed the Bitcoin miner to reliance on poor in-house management practices and misplaced priorities.
The lender decried the ill-conceived strategy to prioritize constructing power facilities. In addition, B. Riley condemned the aggressive expansion of mining without disposing of Bitcoin or hedging prices.
The lender acknowledged the aggressive approach yielded the liquidity crisis that compelled Core Scientific to dispose of its 9,618 BTC. Although the BTC disposed of in April yielded $362 million, the sale imposed huge losses on the miner.
The current liquidity crisis has affected the miner’s share performance. In particular, its share price plummeted by 97.7% to exchange hands at $0.25 from $11.02 at the onset of 2022.
Liquidity Crisis Revealed
B. Riley’s reference to past disclosures cited the quarterly report on November 22, where the Miner admitted to suffering a liquidity crunch. In particular, it lamented the inadequacy of cash to sustain operations till 2023. The quarterly filing doubts the miner’s capability to secure financing through capital markets.
Core Scientific attributes its financial woes to the decline in BTC prices fueled by the current crypto market slowdown. Moreover, the firm update on October 26 showed that rising electricity costs eroded its profitability, translating to a liquidity crunch. Lastly, the miner confessed its exposure to bankrupt Celsius Networks after it defaulted on a $2.1 loan.
Viability of Financial Agreement
B. Riley’s letter portrayed confidence that the Bitcoin miner has exhausted alternatives for it to reject the financing offer.
B. Riley’s letter restated the fiduciary duties the Core Scientific board owed to safeguard stakeholders’ interests. The lender observed that authorizing Chapter 11 filing would violate the board’s fiduciary duties in safeguarding stakeholders’ interests.
The price of Core Scientific’s share plummeted by over 97% from $11.02 in January 2022 to $0.24. However, the financial agreement will likely inspire the share’s price recovery.
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