Bitcoin Miner Stronghold Moves To Erase $18M in Debt as CEO’s Shares Plummet
The deal is structured to reduce the bitcoin miner’s debt load by about $18 million as Stronghold preps for what’s expected to be a prolonged crypto winter
DALL-E modified by Blockworks
Stronghold Digital Mining is looking to free up its cash flows on the heels of its chief executive buying about $1 million of stock that has since sunk by about 75%.
The bitcoins the company mines, meanwhile, have hovered for a week in the $16,000 range — the latest indicator of downward pressure for the mining sector.
Stronghold’s solution is to issue a debt-stock swap, which would erase nearly $18 million of the operation’s debt and ensuing interest by floating fresh stock valued at roughly $23 million.
The struggling bitcoin miner had on hand a mere six bitcoins — worth a tick short of $100,000, as of publication — plus $12.4 million of cash with no string attached, through year end. Through Oct. 31 of 2022, the company had on hand 62 bitcoins and some $30 million in cash.
The new equity, a Series C preferred stock option, would give investors the option to convert to Stronghold common stock at $0.40 per share — a slight discount to Stronghold’s (SDIG) Tuesday close of $0.43. The stock was down more than 10% on the day alone and has dropped by about 97% over the last year.
Stronghold lenders set to opt into the convertible options include Adage Capital, Continental General Insurance Company and Parallaxes Capital, according to public disclosures.
Spokespeople for the companies did not return requests for comment.
The latest in a string of efforts
The move marks the latest effort by a crypto miner to free up cash as bitcoin has traded in a sideways, downward range over the past few weeks.
Stronghold CEO Greg Beard agreed in September to buy 602,609 shares of his company’s stock at $1.66 — a value of roughly $1 million. Those shares are now worth about a quarter of that.
An unspecified institutional investor around the same time snapped up five million shares of Stronghold for $1.60 per share. Proceeds were earmarked for “general corporate purposes,” including buying bitcoin mining rigs.
The chief executive’s buy came about a month before Stronghold finished extinguishing roughly $67 million of debt in October tied to equipment financed by NYDIG and the Provident Bank by returning 26,000 bitcoin miners.
Beard, in a statement at the time, said the company was planning on “opportunistically” building its mining capabilities back up and would look to “improve financial flexibility in what remains a dynamic, challenging market.”
A struggling sector
The move comes as industry watchers are eyeing the likely possibility that even more crypto miners go bankrupt in 2023.
The deal is intended to allow Stronghold to free up cash to keep its business lines humming through an extended crypto winter — by alleviating some of the pain from coughing up interest on its substantial amount of debt.
“This is a necessary move to preserve cash, reduce our financial obligations, and when coupled with our ability to sell power, better position the company to survive a potentially prolonged crypto market downturn,” CEO Greg Beard told Blockworks via email.
The agreement is expected to close in February, at which point the company expects to have less than $55 million in total principal amount of outstanding debt.
Core Scientific filed for bankruptcy last month after data center operator Compute North lodged its own bankruptcy in September.
Argo Blockchain, which warned last month of holding “insufficient cash,” said last week that it is selling its flagship Texas-based Helios plant to Galaxy Digital for $65 million.
“The market is currently under a huge amount of stress, so comprehensive alignment among existing Stronghold shareholders and the noteholders is critical, and this agreement brings that,” Beard said.
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