Core Scientific, the embattled Bitcoin mining firm, is set to emerge from Chapter 11 bankruptcy after the United States Bankruptcy Court for the Southern District of Texas approved its reorganization plan, paving the way for the company to resume operations and repay its debts.
Core Scientific filed for Chapter 11 bankruptcy in March 2023, when the massive hit on Bitcoin prices forced the firm to implement a restructuring support agreement (RSA). According to a January 16 press release, Core Scientific will pay its current debt alongside shareholders receiving 60% equity.
In the bankruptcy filings, Core Scientific expressed plans to keep its existing self-mining operations, a section of the company that has significantly positive cash flow outside the existing debts. Given the recent recovery in Bitcoin prices, Core Scientific will be emerging from bankruptcy to settle current debtors.
About the Core Scientific Reorganization Plan
Court documents detailing the reorganization plan have a massive 21 pages, but a company statement announcing the development summarized some plans for the restructuring project.
The court approval authorizes Core Scientific to relist on Nasdaq by the end of January, marking its first move after re-emerging. Existing shareholders will own 60% equity in the company under the new arrangement, which means investors might see their shares diluted to nearly half their current worth.
The plans for unsecured creditors seem a bit fairer, with Core Scientific unveiling plans to settle its debt using a cash exercise of applicable warrants. The cash realized from the operation will pay approximately $1 billion in debts to creditors, helping its bankruptcy reemergence.
While this plan will not sit well with several shareholders, keeping 60% of their shares in an operational company set to start making profits is ultimately more desirable than having equity in a bankrupt company.
Why did Core Scientific File for Bankruptcy?
Recall that the Bitcoin mining farm filed for Chapter 11 bankruptcy in March last year following the ‘crypto winter’ event that saw crypto institutions collapse, including Bitcoin, the Silicon Valley Bank, and Bitcoin mining companies like Core Scientific.
At the time, Core Scientific had around 1,000 to 5,000 creditors with assets worth between $1 billion and $10 billion. With its cash inflow not good enough to settle its debts, the company opted for bankruptcy protection and proposed a restructuring support agreement (RSA) after extensive discussions with stakeholders.
Amid the Chapter 11 filing, Core Scientific was careful enough to successfully negotiate an agreement that saw it continue operations in its state-of-the-art mining facility, ensuring the company continued to record sizeable cash inflows when it was bankrupt.
With the price of Bitcoin recovering significantly from its one-year lows, Core Scientific is doing progressively better to the point where the company is comfortable enough to propose an emergence from bankruptcy.
Shareholders have a catch. They only get to keep 60% of their investment value, but unsecured creditors may soon start smiling at the bank as the Bitcoin miner puts its plans to settle creditors in motion.
If the restructuring plan goes as planned, Core Scientific may return to the popular securities marketplace, Nasdaq, as early as next week. While official press statements from Core Scientific quote the end of January, there are indications that it may come earlier than expected.
Despite its bankruptcy hurdle, Core Scientific is one of the largest blockchain data center providers in the United States, with facilities spread across five states. In October 2023 alone, the company mined over 11,600 Bitcoins.
While speaking to The Street in an interview shared on his personal LinkedIn, Core Scientific CEO Adam Sullivan discussed plans for the future, detailing how it plans to reimburse creditors and give existing investors better value for their money.
While most observers have high hopes for the restructuring plan, it remains uncertain if it works out as the Bitcoin mining company proposed.
