Core Scientific

Core Scientific debtors petition bankruptcy court to approve new president

The debtors appointed Adam Sullivan, a managing director at investment banking firm XMS Capital Partners, to assume the role of president amid the firm’s bankruptcy proceedings.

The debtors behind bankrupt cryptocurrency mining firm Core Scientific filed a motion for the approval of hiring a permanent president.

In an April 10 filing with the United States Bankruptcy Court for the Southern District of Texas, Core Scientific said it was addressing “a gap in the Debtors’ management team” prior to the firm filing for bankruptcy in December. The debtors appointed Adam Sullivan, a managing director at investment banking firm XMS Capital Partners, to assume the role of president amid the company’s bankruptcy proceedings.

“Mr. Sullivan is no stranger to the digital asset mining space and has extensive experience in the digital asset investment banking industry,” the filing said. “[He] will principally work on financial and strategic matters, including working with customer, supplier, and creditor relationships and assisting with the negotiation of a plan of reorganization in his capacity as a member of the management team.”

According to the debtors, Sullivan will receive a base salary of $500,000 as well as a guaranteed annual bonus of at least $500,000 in 2023 in his role as president. Soon-to-be former Core Scientific president Todd DuChene will stay on as the firm’s chief legal officer as well as assume the role of chief administrative officer.

Prior to its bankruptcy filing, Core Scientific reported it expected its “existing cash resources will be depleted by the end of 2022,” citing the low price of Bitcoin (BTC), increased electricity costs and litigation with crypto lender Celsius. The mining firm had hosted more than 37,000 rigs for Celsius and alleged in court filings that the crypto lender had failed to pay its power bills, contributing to its liquidity issues.

Today’s $CORZQ daily self-mined #Bitcoin for the last reported 24-hour period (10-APR-2023): 37.7 pic.twitter.com/ZlnlgfhzhW

— Core Scientific (@Core_Scientific) April 11, 2023

Though moving through bankruptcy proceedings, the Texas firm continues to mine BTC despite disruptions to its supply of rigs. The bankruptcy court approved Core Scientific handing over more than 27,000 miners to the New York Digital Investment Group in February as part of a deal to pay off roughly $38 million in debt.

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Core Scientific to transfer $20M of equipment to settle bankruptcy dispute

Millions of dollars worth of electrical equipment will be transferred to the crypto miners’ exclusive energy negotiator to settle a payments dispute.

A $20 million settlement between Bitcoin (BTC) miner Core Scientific and its energy negotiator Priority Power Management has been approved by the judge in Core Scientific’s bankruptcy proceedings.

In a March 20 filing in the United States Bankruptcy Court for the Southern District of Texas, Judge David Jones signed off on allowing Core Scientific to transfer around $20.8 million worth of equipment to Priority Power.

The companies had been in a dispute over two Texas-based mining facilities that were slated to receive 1,000 megawatts of power between them to increase Core Scientific’s mining capacity.

*Core Scientific’s facility in Marble, North Carolina. Source:* *Core Scientific*

In a declaration filed on March 19, Core Scientific executive Michael Bros said it brought on Priority Power in June 2021 to exclusively manage, consult and develop infrastructure to fulfil its energy needs “on a short ramp-up schedule.”

However, Bros said that by May 2022, “it became clear that the Facilities would not receive the anticipated power load,” and Core Scientific stopped making payments to Priority Power, which “suffered significant losses.”

Priority Power then claimed Core Scientific owed it around $30 million for the work it had performed before the miner filed for Chapter 11 bankruptcy in December last year.

The judge’s decision means that Priority Power will be given $20.8 million worth of equipment from the now-bankrupt firm, including electrical equipment such as power transformers and breakers.

The deal also promises that Core Scientific “will introduce” Priority Power “to any acquirer” of its sites in Texas, so that it can potentially go into an energy management and consulting agreement with the new owners.

Priority Power will also get to keep $514,000 earned by curtailing power for Core Scientific. The miner will also reimburse the firm “for legal fees and out-of-pocket expenses up to $85,000.”

Core Scientific filed for bankruptcy due to pressure from falling company revenues, low Bitcoin prices and litigation costs against the bankrupt crypto lender Celsius.

Core Scientific has been forced to hand over equipment before, making made a deal in February with New York Digital Investment Group to pay off a $38.6 million debt by handing over more than 27,000 mining rigs that were used as collateral.

Core Scientific to hand over 27K rigs to pay $38M debt

The bankrupt crypto mining firm believes that the long-term benefits outweigh the immediate loss of handing over the machines.

Crypto mining firm Core Scientific made a deal with the New York Digital Investment Group (NYDIG) to pay off an outstanding debt of $38.6 million by handing over more than 27,000 mining machines used as collateral.

In a court filing, the company said the mining rigs were no longer essential to its operations and plans. The firm is now waiting to get the approval of the United States Bankruptcy Court for the Southern District of Texas, which is in charge of the proceedings.

While the company accepted that the move would negatively impact its revenue, Core Scientific highlighted that the long-term benefits of paying off its debt “outweigh the immediate loss.” The crypto-mining firm believes that the transfer is the first step toward becoming more profitable and sustainable.

The firm is also shifting its operations to what it described as a “somewhat smaller, but more efficient” fleet of mining rigs which were in storage and not mining Bitcoin (BTC). The company plans to mitigate some of the losses incurred by the transfer of assets by installing the S19 XP mining rigs, which are not currently in use.

The crypto mining company filed for Chapter 11 bankruptcy on Dec. 21. The filing happened months after the company revealed that it was going through financial distress in a filing with the Securities and Exchange Commission. At the time, the company cited increased electricity costs, an increase in the global Bitcoin hash rate, low Bitcoin prices and the Celsius bankruptcy as the reasons for its financial struggles.

On Jan. 31, the bankruptcy court approved the mining company’s plan to borrow $70 million to replace its existing loan. With this, Core Scientific can take out a loan from investment bank B. Riley which is also one of the firm’s creditors.

NY law firm investigates potential ‘securities fraud’ at Core Scientific

The investigation was prompted by a report from Culper Research, which alleged that Core Scientific had “wildly oversold” its mining and hosting businesses.

A New York-based law firm says it has begun an investigation into whether Bitcoin miner Core Scientific and its leadership potentially engaged in “securities fraud and other unlawful business practices” that led to its stock price falling on several occasions.

According to securities class action firm Pomerantz LLP, the investigation was prompted by a report from Culper Research in 2022, which alleged that Core Scientific had “wildly oversold” its mining and hosting businesses in 2021 and also waived a 180-day lockup period of over 282 million shares, making them “free to be dumped” in March.

This report claimed that insiders at Core Scientific had “abandoned any pretense of care for minority shareholders,” noting that on this news, Core Scientific’s share price fell 9.4% on March 3.

The law firm also highlighted an incident on Sept. 28, in which crypto lender Celsius Network filed a motion in the bankruptcy court, accusing Core Scientific of violating the automatic stay provisions, adding improper surcharges and failing to meet its contractual obligations.

This led to its stock price falling 10.3% the next day, on Sept. 29, it said.

In a final incident, the law firm said on Oct. 27, Core Scientific announced that “given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue,” revealing it held only 24 Bitcoin (BTC) compared to 1,051 BTC on Sept. 30.

This news caused Core Scientific’s stock price to drop sharply, closing at $0.22 per share, a decline of 78.1%, the firm said.

Pomerantz LLP said it was investigating these claims on behalf of investors of Core Scientific and has called for any such investors to join the potential class action.

The same law firm filed a class-action lawsuit against Silvergate Capital on Dec. 13 for making “materially false and/or misleading statements” and failing to disclose “material adverse facts about the Company’s business, operations, and prospects.”

On Jan. 4, Cointelegraph reported that Core Scientific had agreed to shut down 37,000 mining rigs it was hosting for Celsius due to the bankrupt cryptocurrency lender’s failure to pay its power bills. According to the Bitcoin miner, this played a significant role in the liquidity issues that led to its filing for Chapter 11 bankruptcy on Dec. 21.

On Dec. 23, Cointelegraph reported that a United States bankruptcy court had granted Core Scientific interim approval to access a $37.5 million loan from existing creditors to fund these liquidity issues.

BTC miner Core Scientific gets interim nod for $37.4M bankruptcy loan

The loan would allow Core Scientific to keep its mining and hosting operations afloat while it restructures.

A United State bankruptcy court has granted Bitcoin (BTC) miner Core Scientific interim approval to access a $37.5 million loan from existing creditors to fund it amid liquidity issues.

Core Scientific is one of the largest cryptocurrency mining companies in the United States, but it filed for Chapter 11 bankruptcy on Dec. 21 as a result of rising energy costs, declining revenue and the declining price of BTC in 2022.

In a public statement made on that same day, Core Scientific outlined that it intends to “move swiftly through the restructuring process” and maintain its mining and hosting operations.

The loan comes from a group of creditors who hold more than 50% of Core Scientific’s convertible notes, which agreed to provide debtor-in-possession (DIP) facility commitment loans up to a total of $75 million, according to court filings.

The firm’s application was approved on Dec. 22 and court filings show that the DIP loan will have a 10% per annum interest rate attached.

Core Scientific will be able to access $37.5 million immediately to keep the lights on, while it intends to apply to access the remaining $37.5 million in January, Reuters reported Dec. 23, citing a company attorney.

In the initial DIP budget, however, it forecast Core Scientific would apply for $12.5 million by Jan. 21.

The Reuters report also suggests the creditors understand the challenges of the bear market and are looking at a long-term play with Core Scientific.

Kris Hansen, a representative of the creditors, told the news outlet that the existing stakeholders “have faith” in the company’s future despite its recent troubles.

In its third-quarter financial report, Core Scientific reported having $1.4 billion worth of assets and $1.33 billion worth of liabilities as of Sept. 30, showing a tight balance sheet amid the bull market.

Notably, the firm reports a loss of $434.8 million in the third quarter, with total losses reaching $1.71 billion so far this year. As such, the firm indicated in late November that it was most likely heading toward bankruptcy without a fresh injection of cash .

The firm has reportedly mined almost 12,000 BTC this year, a significant improvement on the 5,769 BTC mined in 2021, however that of course has not been able to save Core Scientific from its financial woes.

Core Scientific in ‘substantial doubt’ of continuing without more cash

The Bitcoin miner warned its cash reserves may be depleted by the end of 2022 or sooner as it cuts back on spending, including not making loan repayments.

Bitcoin (BTC) miner Core Scientific has warned of “substantial doubt” they will be able to continue operations over the next 12 months given financial uncertainty.

In its quarterly report filed with the United States Securities and Exchange Commission (SEC) on Nov. 22, the firm indicated it had accrued a net loss of $434.8 million over the third quarter of 2022.

After net losses of $862 million in the second quarter, its total net losses for 2022 are sitting at $1.71 billion.

The company suggested in order to continue its operations through to November 2023, it will require additional liquidity, adding that it anticipates its cash resources “will be depleted by the of 2022 or sooner.”

“Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern through November 2023.

It said it also had doubts about its ability to raise funds through financing or capital markets citing “uncertainties and current market conditions” which have reduced the availability of those types of liquidity sources.

Rising energy costs, the falling price of Bitcoin, and an increased hash rate were also cited as reasons for why it’s suffering a liquidity squeeze, adding that further “substantial doubt exists” with its ability to continue operating as its “very difficult to predict when or if Bitcoin prices will recover or energy costs will abate.”

Core Scientific had previously indicated in an Oct. 26 SEC filing that a low Bitcoin price, the rising cost of electricity, and a refusal from bankrupt crypto lender Celsius to repay a $2.1 million loan could result in its cash resources being “depleted by the end of 2022 or sooner.”

Core Scientific has taken steps to ease the financial stress it is under, including decreasing operating costs, reducing or delaying capital expenditures, and increasing hosting revenues.

It has also decided not to make payments to some of the firms it has borrowed from and warns that it may be sued for nonpayment and face increases in interest rates as a result.

Core Scientific is not the only crypto mining firm struggling to continue operating in the current market, with Argo Blockchain seeking to raise additional liquidity via subscription for ordinary shares and warning that it is also at risk of ceasing operations if it fails to do so.

Australian mining firm, Iris Energy, is also showing signs of financial distress, revealing in a Nov. 21 filing to the SEC that it had unplugged hardware due to the units producing “insufficient cash flow.”

The founder of asset manager Capriole Investments, Charles Edwards, has been particularly bearish about the state of Bitcoin mining and noted in a Nov. 22 tweet that this type of response is to be expected when the price of Bitcoin is below the cost of mining.

Bitcoin miners are "unplugging their hardware" because "the units produce insufficient cashflow."

Iris Energy bankrupt.

This is what happens when we spend time below the Bitcoin Electrical Cost. It no longer makes sense for many to run their mining rigs. pic.twitter.com/kjrC6j3KVf

— Charles Edwards (@caprioleio) November 22, 2022

Core Scientific in ‘substantial doubt’ of continuing without more cash

The Bitcoin miner warned its cash reserves may be depleted by the end of 2022 or sooner as it cuts back on spending, including not making loan repayments.

Bitcoin (BTC) miner Core Scientific has warned of “substantial doubt” they will be able to continue operations over the next 12 months given financial uncertainty.

After net losses of $862 million in the second quarter, its total net losses for 2022 are sitting at $1.71 billion.

“Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern through November 2023.”

It said it also had doubts about its ability to raise funds through financing or capital markets, citing “uncertainties and current market conditions,” which have reduced the availability of those types of liquidity sources.

Rising energy costs, the falling price of Bitcoin and an increased hash rate were also cited as reasons for why it’s suffering a liquidity squeeze, adding that further “substantial doubt exists” with its ability to continue operating, as its “very difficult to predict when or if Bitcoin prices will recover or energy costs will abate.”

Core Scientific had previously indicated in an Oct. 26 SEC filing that a low Bitcoin price, the rising cost of electricity and a refusal from bankrupt crypto lender Celsius to repay a $2.1 million loan could result in its cash resources being “depleted by the end of 2022 or sooner.”

Core Scientific has taken steps to ease the financial stress it is under, including decreasing operating costs, reducing or delaying capital expenditures, and increasing hosting revenues.

It has also decided not to make payments to some of the firms it has borrowed from and warns that it may be sued for nonpayment and face increases in interest rates as a result.

Bitcoin miners are “unplugging their hardware” because “the units produce insufficient cashflow.”

Iris Energy bankrupt.

This is what happens when we spend time below the Bitcoin Electrical Cost. It no longer makes sense for many to run their mining rigs. pic.twitter.com/kjrC6j3KVf

— Charles Edwards (@caprioleio) November 22, 2022

Core Scientific may consider bankruptcy following uncertain financial condition: Report

The mining firm has cited the low price of Bitcoin, electricity costs, an increase in the BTC hash rate, and litigation with Celsius playing a role in its financial difficulties.

Bitcoin mining firm Core Scientific is reportedly considering a potential bankruptcy amid a group of its convertible bondholders consulting restructuring lawyers.

According to a Nov. 1 report from Bloomberg Law, the Core Scientific bondholders worked with legal firm Paul Hastings following a United States Securities and Exchange Commission filing suggesting financial distress. The Oct. 26 filing indicated that the mining company was unable to meet its financial obligations in late October and early November, citing the low price of Bitcoin (BTC), rising costs of electricity, an increase in the global BTC hash rate and legal issues with crypto lending firm Celsius.

Core Scientific claimed in an Oct. 19 court filing that Celsius owed the firm more than $2.1 million for post-petition charges, and it would continue to lose roughly $53,000 daily until its financial obligations were met. Celsius has countered that the mining firm delayed deployment of their rigs and supplied less power than required under a previously agreed upon contract.

The price of shares of the Core Scientific’s stock CORZ on Nasdaq fell more than 87% following the SEC filing, from $1.01 to $0.17 at the time of publication. As of Oct. 26, the mining firm reported it held $26.6 million in cash and 24 BTC, but with a reported $880 million in notes payable as of June 30. As of Nov. 1, the company has continued to mine BTC:

Today’s $CORZ daily self-mined #Bitcoin for the last reported 24-hour period: 41.2 pic.twitter.com/HJyH4lUvFS

— Core Scientific (@Core_Scientific) November 1, 2022

Many companies operating in the crypto space, from mining firms to lending companies, have reported financial difficulties amid the market downturn in May. Compute North, a company based in Minnesota, filed for Chapter 11 bankruptcy in September, citing financial pressure due to the effects of crypto winter and rising energy costs. Argo Blockchain also announced in October that it was at risk of ceasing operations due to a lack of financing.

Cointelegraph reached out to Core Scientific, but did not receive a response at the time of publication.

Celsius bankruptcy case trustee slams $3M employee bonus motion

The trustee has objected to the retention bonus, citing a lack of sufficient information within the motion to warrant such a high payout and a lack of clarity around whether any recipients should be considered insiders.

The United States trustee overseeing the Celsius Chapter 11 bankruptcy case, William Harrington, has objected to a Celsius motion that would see 62 of its 275 employees paid a retention bonus totaling $2.96 million.

The trustee has blasted Celsius in its supporting statement for the objection filed on Oct. 27, noting:

“It defies logic, not to mention the Bankruptcy Code, that a company where the majority of its functions are no longer providing services, would now propose a multi-million dollar bonus scheme.”

For the “bonus motion,” as it is aptly named, to receive approval, the trustee claims that Celsius must show that the bonuses are reasonable based on the facts of the case. Without any identifiable metrics, the trustee says Celsius has failed to do so.

While the objection does not infer that Celsius employees are not deserving of an essential employee retention program (KERP), it points to the information provided by Celsius as being insufficient to justify such a high amount.

KERPs are designed to motivate employees to advance a successful restructuring outcome. While adding to executive pay ahead of a potential restructuring may seem counterintuitive, it can often be in the best interest of stakeholders.

Unlike the personal information of Celsius creditors, details of the KERP recipients have been kept out of the public eye, with an unredacted breakdown provided only to the court, the Official Committee of Unsecured Creditors and the trustee.

The trustee has taken issue with that as well, claiming other interested parties are unable to argue whether the participants could be considered insiders, which would render them ineligible for a KERP.

Celsius had filed the bonus motion on Oct. 11, with a hearing on the proposal and related relief set to take place on Nov. 1.

Meanwhile, the lender is also being blamed for causing financial distress at Bitcoin (BTC) miner Core Scientific, who claimed on Oct. 19 that Celsius has refused to pay its bills since it filed for Chapter 11 bankruptcy on July 13, resulting in Core Scientific losing approximately $53,000 per day.

Crypto miners in Texas shut down operations as state experiences extreme heat wave

ERCOT reported that wind generation in Texas was “generating significantly less,” potentially leaving the state unable to meet energy demands during triple-digit temperatures.

With many parts of Texas enduring days of temperatures well over 100 degrees Fahrenheit in July, many crypto miners have shuttered operations in anticipation of the state’s energy grid being unable to meet demand.

The Electric Reliability Council of Texas, or ERCOT, on Sunday called on Texas residents and businesses to conserve electricity with “record high electric demand” expected on Monday. According to ERCOT’s forecast, demand for electricity in Texas — due in part to running air conditioners amid extreme heat — could surpass the available supply.

The energy supplier’s prediction model showed demand could reach a record high of 79,615 megawatts (MW). While energy costs in Texas in June were reportedly lessened due to increased production from wind and solar, ERCOT reported on Sunday that wind generation was “generating significantly less than what it historically generated in this time period” — less than 8% of capacity when demand was predicted to be highest.

Many crypto miners in the Lone Star State have announced they have already scaled back or shut down operations in anticipation of demand Texas’ energy grid may not be prepared to handle. In a Monday announcement on Twitter, crypto miner Core Scientific said it had powered down all its ASIC servers located in the state until further notice “to provide relief to people in Texas.”

To provide relief to people in Texas, ALL of Core Scientific ASIC servers located in the state have been powered down. Core Scientific’s ASIC servers in Texas comprise less than 15% of our footprint, and will remain powered down until further notice.

— Core Scientific (@Core_Scientific) July 11, 2022

A Riot Blockchain spokesperson told Cointelegraph that its Whinstone facility in Rockdale had curtailed energy use at ERCOT’s request during the summer months, consuming 8,648 MWh less. Argo Blockchain CEO Peter Wall also said that the firm had also reduced operations in the state — likely referring to its Helios facility in Dickens County.

“In times of high-power demand, we believe that people should take priority over crypto mining,” Wall told Cointelegraph. “When ERCOT sends out a conservation alert, we take it seriously and curtail our mining operations. We did this again this afternoon, as did many of our peers in the mining space.”

#demand response is critical. In the coming years, bitcoin mining will become an indispensable tool in the reliability tool belt. pic.twitter.com/cEicdzodO2

— Lee ₿ratcher (@lee_bratcher) July 8, 2022

Mining firms operating in Texas during the winter months have faced similar challenges since 2021, when freezing temperatures nearly caused the entire grid to shut down — instead, many parts of the state were without power for days. In February, Riot announced that it had shut down 99% of its operations in advance of a possible repeat winter storm, predicted to demand roughly 50,000 MW of electricity — 62% of what Texans may be attempting to draw from the grid on Monday.

ERCOT’s announcement came as many crypto mining firms continue to set up new operations in Texas, seemingly attracted by less regulatory oversight and lower energy costs. In June, Riot Blockchain said it planned to “ship the balance of its S19 miner fleet” from New York to Texas, and Switzerland-based crypto mining firm White Rock Management announced it will be expanding its operations to the United States — starting with Texas.