Core Scientific may sell up to 1 gigawatt worth of its sites under development after filing for Chapter 11 bankruptcy protection, The Block has learned.
“The likelihood of us selling assets that we currently are operating at is close to zero,” Russell Cann, chief mining officer, told The Block. “The likelihood of us selling assets that are under development where we have power capacity and land and substations is high.”
Core Scientific is currently the largest company in the space, mining with about 800 to 850 megawatts worth of power, Cann said. It won’t sell any of those sites, nor will it sell machines. The sites it might sell are an extra gigawatt on top of that and were supposed to come online in 2023.
Bankruptcy protection
The company filed for Chapter 11 bankruptcy protection early on Wednesday with a prearranged deal and plans to turn most of its debt into equity. A large majority of it is from convertible notes. Other big creditors such BlockFi and B. Riley will also have the chance to convert to equity.
“Everyone is showing willingness” to follow that course of action, Cann said. “As long as we can get a large enough percentage of each class of debt holder to agree, then in a prearranged [process] you’re able to pull the others. If you have a few stragglers that don’t want to agree, the court will force them to … you need a majority, but not everyone, to agree.”
The company warned in October that it could run out of cash by the end of the year and bankruptcy was an option, but things seemed to be turning around last week, with B. Riley offering the miner a $72 million financing package.
“That deal required all of our equipment lenders to go along, and we couldn’t quite make it all work out,” Cann said.
However, it did get a similar debtor-in-possession financing offer from its convertible notes shareholders, worth a total of $75 million, according to a statement released Wednesday. “This is enough extra cash to get us through the Ch 11 process while we continue to operate as usual and when we come out of the Chapter 11 process, we will be fully solvent with no liquidity issues,” Cann wrote in a note.
Mining woes
Core Scientific follows Compute North into filing for bankruptcy protection. Mining companies Argo Blockchain and Greenidge Generation have recently floated the possibility of an impending bankruptcy as the industry has seen profit margins continuously shrink amid lower bitcoin prices and higher energy costs. Revenue fell 20% just last month, according to data from The Block Research.
Core Scientific will keep operations going as usual. Its mining and hosting business together are profitable, Cann said.
“But those profits out of that business just were not enough to cover all of the amortization schedule,” he added. “Hindsight is 20/20. We were too aggressive on how fast we were amortizing those things.”
It might not, however, grow as planned if it does in fact decide to sell any facilities — one in Texas and another one in Oklahoma.
“Our goal is not to be the largest. Our goal is to be the most profitable… This Chapter 11 is going to help us become even more efficient because it will take away a lot of our debt. We’re already very profitable,” Cann said. “We’ll come out of Chapter 11 with a much, much smaller amount of debt on our company. So we should be close to debt free.”
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