Bitcoin Mining Company in Bankruptcy Granted Court Permission to Borrow in USD or BTC
Rhodium Enterprises, Inc., a Bitcoin mining company that filed for bankruptcy on August 24, has been granted court approval for a unique financing arrangement as it progresses through Chapter 11 bankruptcy proceedings. According to a recent report by Bloomberg, the company has been given the option to borrow funds in either US dollars or Bitcoin, which is an uncommon practice in the realm of bankruptcy financing. Galaxy Digital, led by Mike Novogratz, has extended an offer to Rhodium for loans of up to $30 million in US dollars or 500 Bitcoin, with annual interest rates set at 14.5% and 9.5%, respectively. Notably, the Bitcoin loan can be repaid in dollars based on prevailing market exchange rates at the time of repayment, subject to the lender’s approval.
The financing structure adopted by Rhodium stands out due to the inherent volatility of Bitcoin, which can complicate the estimation of total repayment amounts, despite the fixed interest rates in place. Opting for funding in Bitcoin reflects a broader trend among cryptocurrency firms facing financial challenges. For instance, Bittrex Inc. also explored Bitcoin-based financing options as it phased out its US operations and aimed to settle its obligations to customers.
Court documents submitted by David Dunn, the company’s co-chief restructuring officer, attribute Rhodium’s financial woes primarily to a strained relationship with its landlord and power provider, Whinstone US, Inc. Operating Bitcoin mining facilities in Texas, Rhodium is just one of many crypto mining companies currently grappling with significant financial strains.
According to an article by Cointelegraph, Bitcoin mining enterprises have been under pressure due to reduced mining rewards following the recent Bitcoin halving and mounting debt burdens. While financially robust companies like Riot Platforms and Cleanspark have expanded their operations by acquiring other miners with ready-to-use facilities to enhance their hashrate, firms with tighter budgets such as Iren and Cipher have focused on securing greenfield opportunities that require less immediate capital.
In a related development, Bitfarms, another Bitcoin mining company, announced its acquisition of Stronghold Digital Mining for around $125 million on August 21. This acquisition includes assumed debt of approximately $50 million, underscoring the financial complexities faced by participants in the Bitcoin mining sector.
