Core Scientific Plans to Offer Convertible Senior Notes

Core Scientific, a publicly traded bitcoin mining company, reported a net loss exceeding $800 million for the second quarter. On Tuesday, the company announced plans to offer up to $350 million in convertible senior notes that are set to expire in 2029. Following this news, the firm’s stock (ticker CORZ) dropped over 10%.

Details of the Offering

The notes will be issued in a private offering aimed at qualified institutional buyers, with an option for purchasers to acquire an additional $52.5 million in notes. Investors can hold the senior, unsecured debt until maturity or opt to convert it into shares, with interest payable semi-annually.

Core Scientific stated that proceeds from the offering will be used to fully repay outstanding loans under its credit and guaranty agreement from January 2024 and redeem all senior secured notes due in 2028. The remaining funds will go toward “general corporate purposes,” possibly including acquisitions.

Background

In January, a bankruptcy court approved Core Scientific’s Chapter 11 restructuring plan, which enabled the company to eliminate $400 million in debt and continue its operations. Initially filing for bankruptcy protection in December 2022 due to a sharp decline in crypto prices and the collapse of business partner Celsius, the firm has benefitted from the recent rebound in bitcoin prices.

As part of its restructuring, Core Scientific provided debt holders with two tranches of warrants and contingent value rights. These were revalued during the second quarter, contributing significantly to its paper net losses due to an increase in stock price.

Current Position

The company emerged from bankruptcy with strengthened operations, having mined $1.4 billion worth of bitcoin in 2023, positioning itself as one of the largest U.S. mining firms. Furthermore, Core Scientific has expanded into other data center services, including high-performance computing for AI companies like CoreWeave.

Despite cutting its debt by 60% thus far this year, the announcement of issuing convertible notes has raised concerns among investors, particularly in the context of the Bitcoin halving environment.