Core Scientific, a publicly traded blockchain computing data center provider and miner of digital assets, will enter into a restructuring support agreement with an ad hoc noteholder group representing more than 50% of the holders of its convertible notes.
To implement the restructuring transaction, on Dec. 21, the company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. During this process and upon emergence, the company will continue to operate its existing self-mining and hosting operations.
In connection with the restructuring support agreement, the ad hoc noteholder group agreed to provide commitments for a debtor-in-possession facility of up to $56 million and to support the syndication of up to an additional $19 million in new money DIP facility loans to all holders of convertible notes. These funds, along with ongoing cash generated from operations, are anticipated to provide the necessary financing to effectuate the planned restructuring, facilitate the emergence from Chapter 11 and cover the fees and expenses of legal and financial advisors.
The restructuring support agreement will be subject to a “fiduciary out” for the company to pursue better alternatives. As contemplated, the restructuring will reduce the company’s funded indebtedness and annual interest expense.
Pursuant to the contemplated restructuring support agreement, the company’s existing convertible noteholders will equitize their debt into a majority of the common stock of the reorganized company. In addition, holders of general unsecured claims and existing common shareholders will also receive recoveries in the form of reorganized common stock and warrants exercisable for portions of the common stock of the reorganized enterprise upon obtaining certain valuation thresholds.
According to Core Scientific, the filing of these cases was necessitated by a decline in the company’s operating performance and liquidity due to the prolonged decrease in the price of bitcoin, the increase in electricity costs necessary to power the company’s data centers and the failure by certain of its hosting customers to honor their payment obligations.
Weil, Gotshal & Manges is serving as Core Scientific’s legal advisor, while AlixPartners is serving as its financial advisor and PJT Partners is serving as its investment banker.
