Stronghold Digital to Reduce Principal Debt by $18 Million

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Strong­hold Dig­i­tal Min­ing dis­closed its intent to extin­guish $17.9 mil­lion of prin­ci­pal debt by con­vert­ing Notes to equity.

Accord­ing to an SEC fil­ing, Strong­hold will extin­guish amend­ed notes worth $17.9 mil­lion in exchange for Class C pre­ferred shares with a com­bined face val­ue of $23.1 mil­lion. A stock’s face val­ue is the min­i­mum amount a share­hold­er must pay, as out­lined in a company’s char­ter. New hold­ers of class C shares will have the option of con­vert­ing them to Class A com­mon stock. The com­pa­ny expects to issue a max­i­mum of 57.8 mil­lion Class A shares.

Stronghold Strengthens Position Through Debt Reduction and Power Sales

Accord­ing to its fil­ing, the debt-to-equi­ty con­ver­sion will reduce Stronghold’s prin­ci­pal debt from $82 mil­lion to rough­ly $55 mil­lion. The min­ing firm has set a dead­line of Feb. 20, 2023, to com­plete the trans­ac­tion, pend­ing share­hold­er and Nas­daq approval.

“Fol­low­ing the Clos­ing of the Exchange Agree­ment, which is cur­rent­ly expect­ed to occur in Feb­ru­ary 2023, the Com­pa­ny expects to have less than $55 mil­lion in total prin­ci­pal amount of debt out­stand­ing,” said Stronghold’s CEO Greg Beard.

Per its Q3 2022 earn­ings call, the min­er returned 26,000 Bit­coin min­ing com­put­ers to the New York Dig­i­tal Cur­ren­cy Group (NYDIG) and BankProv. This move extin­guished $68 mil­lion in prin­ci­pal debt. In Oct. 2022, it boost­ed its bal­ance sheet by secur­ing equip­ment financ­ing with low­er month­ly repayments.

Strong­hold shares 50% of the Bit­coin it mines, less ener­gy costs, as part of a host­ing agree­ment with Foundry, the world’s largest Bit­coin min­ing pool. Strong­hold also sells pow­er to the grid when doing so makes more eco­nom­ic sense than min­ing Bitcoin.

Mining Difficulty Adjusted Down as More Machines Halted

Stronghold’s debt cur­tail­ments strength­en its bal­ance sheet as oth­er debt-laden min­ers strug­gle to keep the lights on.

Min­ing dif­fi­cul­ty fell 3.6% in the last two weeks as some min­ers took their equip­ment offline. 

The Bit­coin algo­rithm adjusts dif­fi­cul­ty based on the aver­age time tak­en to guess the cor­rect hash­es of the pre­vi­ous 2016 trans­ac­tion block head­ers. It low­ers the dif­fi­cul­ty when few­er machines com­pete to guess the right hash. Con­verse­ly, it increas­es the dif­fi­cul­ty when more machines jock­ey for the cor­rect answer.

A min­er feeds a nonce vari­able into a hash­ing func­tion to cre­ate an out­put that is less than a spe­cif­ic tar­get val­ue. When few­er min­ers are online, the algo­rithm increas­es the tar­get val­ue, mak­ing it eas­i­er to gen­er­ate a low­er output. 

A Bit­coin min­er proves he has done a cer­tain amount of work to guess the cor­rect nonce and is then reward­ed with Bit­coin. The num­ber of guess­es he makes per sec­ond is mea­sured by a met­ric called the hashrate.

Some Bit­coin min­ing com­pa­nies have offloaded hashrate to cut debt repayments.

New York-based host­ing com­pa­ny Greenidge recent­ly offloaded 2.8 Exa­hash­es per sec­ond (EH/s) of hashrate to NYDIG, while Strong­hold con­sen­su­al­ly returned 2.5 EH/s of capac­i­ty to NYDIG in Q2 2022. Syd­ney-based Iris Ener­gy said it would shut down 3.6 EH/s from two busi­ness oper­a­tions after they failed to gen­er­ate suf­fi­cient cash flow.

Addi­tion­al­ly, oth­er notable com­pa­nies have had to sell mined Bit­coin to help their month­ly cash flows.

Bit­farms sold 3,000 BTC in June 2022 to repay a $100 mil­lion loan from Galaxy Dig­i­tal. Its CEO Emil­iano Grodz­ki resigned from his post in Dec. 2022. Core Sci­en­tif­ic, the pub­lic min­ing com­pa­ny with the high­est debt bur­densold over 7,000 BTC in Q2 2022. The Austin, Texas, firm recent­ly filed for Chap­ter 11 bank­rupt­cy.

For Be[In]Crypto’s lat­est Bit­coin (BTC) analy­sis, click here.

Disclaimer

BeIn­Cryp­to has reached out to com­pa­ny or indi­vid­ual involved in the sto­ry to get an offi­cial state­ment about the recent devel­op­ments, but it has yet to hear back.

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