“Cryptocurrency miner Core Scientific Inc., one of the world’s largest bitcoin miners, said Thursday that it may seek bankruptcy protection as it contends with the prolonged slump in bitcoin prices coupled with an increase in electricity costs. The company is also in litigation with crypto lender Celsius Network LLC, and alleges that Celsius has refused to pay its bills since it filed for chapter 11 itself, threatening Core Scientific’s own financial health” [Gladstone, A. Bitcoin Miner Core Scientific Says It May File Bankruptcy Amid Crypto Slump. (Accessed October 27, 2022)].

In its Form 8-K filing with the SEC dated October 26, 2022, Core specifically set forth:

[…] the Company’s operating performance and liquidity have been severely impacted by the prolonged decrease in the price of bitcoin, the increase in electricity costs, the increase in the global bitcoin network hash rate and the litigation with Celsius Networks LLC and its affiliates (“Celsius”). As a result, management has been actively taking steps to decrease monthly costs, delay construction expenses, reduce and delay capital expenditures and increase hosting revenues. In addition, the Board has decided that the Company will not make payments coming due in late October and early November 2022 with respect to several of its equipment and other financings, including its two bridge promissory notes. As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment or taking action with respect to collateral, where applicable. Any such creditor actions may result in events of default under the Company’s other indebtedness agreements, including its two series of convertible notes due 2025, and the potential exercise of remedies by creditors under such agreements. (emphasis added)

[Core Scientific, Inc. FORM 8-K. (October 27, 2022)].

“The payments the company will skip would have gone to equipment and other financing and two promissory notes. Its creditors may decide to exercise remedies such as accelerating the debt or suing the company, it noted. Those actions, in turn, could result in 'events of default under the Company’s other indebtedness agreements; and more creditor remedies against the company” [Andersen, D. Core Scientific reveals financial distress in SEC filing, says its end may be near. (Accessed October 27, 2022)].

In this regard, Core stated:

It is very difficult to estimate our future liquidity requirements. The Company anticipates that existing cash resources will be depleted by the end of 2022 or sooner. Depending on the Company’s assumptions regarding the timing and ability to achieve more normalized levels of operating revenue, the estimates of amounts of required liquidity vary significantly. Similarly, it is very difficult to predict when or if bitcoin prices will recover or energy costs will abate.

Given the uncertainty regarding the Company’s financial condition, substantial doubt exists about the Company’s ability to continue as a going concern for a reasonable period of time. (emphasis added)

[Form 8-K, supra].

It has been steadily downhill for Core Scientific. “On September 30, the company had 1,051 Bitcoins (BTC$20,614) and $29.5 million in cash. On October 26, it had 24 BTC and $26.6 million. As of May 31st, Core Scientific held 8,058 BTC” [Adeola, M. Core Scientific Reveals Financial Distress In SEC Filing. (Accessed October 27, 2022)].

“Core Scientific entered NASDAQ through an estimated $4.3 billion merger with Power & Digital Infrastructure Acquisition Corporation earlier this year” [Koolplaz. Large Bitcoin Miner Core Scientific Could File for Bankruptcy. (Accessed October 27, 2022)]. NASDAQ traded shares of Core Scientific are trading down at $0.20/share, a huge drop of 79.71% over the past five days as shown in the following price chart:

Photo Source

Bitcoin mining companies such as Core Scientific had recently been increasingly opting to sell equity, resorting to one of their least attractive options to raise money as profits dry up and higher interest rates makes borrowing more expensive. The company entered into a $100 million common stock purchase agreement with B. Riley Principal Capital II in July. Bitcoin has slumped almost 70% since reaching a record high in November 2021. ‘We could see similar filings within the sector,’ said Brian Dobson, an analyst at Chardan Capital, who had a ‘buy’ rating on the shares. ‘This is going to weigh on all of the publicly traded crypto miners.’ Should Core Scientific file for bankruptcy, it would likely be the first large publicly traded Bitcoin miner to do so, Dobson said.

[Cheng, L. and Wanna, C. Bitcoin Miner Core Scientific Says It May Seek Bankruptcy. (Accessed October 27, 2022)].

Bloomberg reports recent additional actions by Core Scientific to include:

• Engaged Weil, Gotshal & Manges as legal advisers, and PJT Partners as financial advisers
• Begun to engage in discussions with creditors regarding initiatives to improve liquidity
• May seek alternative sources of equity or debt financing, delay capital expenditures or evaluate potential asset sales
• Potentially could seek relief under the applicable bankruptcy or insolvency laws

[Id].

By way of reminder: “Core Scientific filed papers in court on Oct. 19 claiming that Celsius had refused to pay its bills to the company since declaring Chapter 11 bankruptcy July 13. Celsius reportedly countered with a claim that Core Scientific had not fulfilled its obligations for rig deployment and power supply. Core Scientific claimed at that time that Celsius owed it $2.1 million and that it was losing $53,000 daily 'to cover the post petition increased electricity tariffs that Celsius refuses to pay.” [Andersen, supra;  see also, Nagoda, K. Oh No, More Trouble for Celsius - Defaults on Core Scientific Payment Due. (Accessed October 27, 2022)].

Appears that Celsius just continues to drag others down with it.