loans

The Toronto-based Bitcoin mining company has reduced its debt by nearly 85% since June 2022.

Bitcoin (BTC) miner Bitfarms has settled its debt obligations with BlockFi, closing the chapter on its short relationship with the bankrupt cryptocurrency lender. 

On Feb. 9, Bitfarms disclosed that it had settled its $21 million debt obligations with BlockFi for a single $7.75 million cash payment. The settlement was reached weeks after Bitfarms warned that it might default on its BlockFi loan.

“Combined with the earlier restructuring and elimination of our capital expenditure obligations in December, this successful negotiation and settlement furthers our initiatives to reduce indebtedness,” said Jeff Lucas, Bitfarms’ chief financial officer.

Bitfarms’ relationship with BlockFi centers around Backbone Mining Company, its wholly owned subsidiary in Washington state. Backbone Mining received a $32 million equipment financing loan from BlockFi in February 2022. By Jan. 31, 2023, the outstanding principal and interest on the loan totaled $21 million.

#Bitfarms has modified its loan agreement with BlockFi Lending LLC (Blockfi), to settle all outstanding principal and interest due totaling $21 million for a single cash payment of $7.75 million.

Press Release: https://t.co/QBD84U5NwA pic.twitter.com/x9Ahug7Nkp

— Bitfarms (@Bitfarms_io) February 9, 2023

Following the settlement, all of Backbone’s assets, including 6,100 miners, are unencumbered.

Cointelegraph reported on Jan. 13 that Bitfarms was seeking to modify its loan agreement with BlockFi to obtain “more favorable terms” and reduce Backbone Mining’s obligations. The original loan facility was secured against Backbone Mining’s assets, including its mining equipment and a percentage of the Bitcoin its rigs produced. The assets securing Backbone Mining’s loan dropped significantly during the bear market.

Related: Blockstream raises $125M to finance expanded Bitcoin mining operations

BlockFi filed for Chapter 11 bankruptcy on Nov. 28, mere weeks after the collapse of crypto exchange FTX. The lender received a $240 million rescue package from FTX US in July 2022, so its fate was seemingly tied to the health of Sam Bankman-Fried’s crypto empire.

The Bitcoin mining community took up massive loans during the 2021 bull market, negatively impacting their bottom lines during a subsequent bear market.

The recent bankruptcy filing of Bitcoin (BTC) miner Core Scientific despite a $72M relief offer from creditors raised questions about the overall health of the bitcoin mining community amid a prolonged bear market. Turns out, the public bitcoin miners owe more than $4 billion in liabilities and require an immediate restructuring to get out of the unsustainably high debt levels.

The Bitcoin mining community took up massive loans during the 2021 bull market, negatively impacting their bottom lines during a subsequent bear market. Bitcoin mining data analytics by Hashrate Index show that just the top 10 Bitcoin mining debtors cumulatively owe over $2.6 billion.

Core Scientific, the biggest debtor among the lot — with $1.3 billion in liabilities on its balance sheet as of September 30th — recently filed for Chapter 11 bankruptcy protection in Texas due to falling revenue and BTC prices. Marathon, the second-biggest debtor, has $851 million in primarily convertible note liabilities. As a result, Marathon prevents bankruptcy by allowing the debt holders to convert the convertible notes to stocks.

Most Bitcoin miners, including the third-biggest debtor, Greenidge, are undergoing a restructuring process to reduce debt. As an industry, the debt-to-equity ratio of public bitcoin mining companies reveals high risk.

As pointed out by Hashrate Index, a debt-to-equity ratio of 2 or higher is considered risky in most industries. The graph below shows the extremely high debt-to-equity ratios currently being sported by some of the prominent Bitcoin miners.

Considering that more than half of the 25 public bitcoin miners boast extremely high debt-to-equity ratios, the mining sector may come across potential restructurings and bankruptcy filings unless the bulls make a comeback.

While some companies may shut down or slow down operations to reduce liabilities, it will help sustainable miners expand their footprint as they buy out the competition’s equipment and facilities.

Related: Bitcoin miner Northern Data says it has no financial debt, expects $204M in revenue for 2022

On Dec. 20, Greenidge signed a $74 million debt restructuring agreement with the NYDIG, a fintech firm dedicated to Bitcoin.

As Cointelegraph reported, the NYDIG agreement would see the purchase of miners with approximately 2.8 exahashes per second (EH/s) of mining capacity. In exchange, the mining company would see a debt reduction of $57 million to $68 million.