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Core Scientific Files Chapter 11, Receives Up to $56MM DIP Facility Commitment

December 21, 2022, 07:46 AM
Filed Under: Cryptocurrency

Core Scientific, a leader in high-performance blockchain computing data centers announced that, after a comprehensive review of potential alternatives and exhaustive discussions with various Company stakeholders, the Company expects to enter into a restructuring support agreement (the "Restructuring Support Agreement") with the Ad Hoc Noteholder Group, representing more than 50% of the holders of its convertible notes.

To implement the comprehensive restructuring transaction contemplated by the Restructuring Support Agreement, on December 21, 2022, the Company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. The Company plans to move swiftly through the restructuring process.  

During this process and upon emergence, the Company will continue to operate its existing self-mining and hosting operations, which remain significantly cash flow positive on a debt-free basis.  The Company is committed to operating normally during the implementation of its restructuring. The Company remains dedicated to providing hosting services and self-mining in its state-of-the-art data centers.   

In connection with the Restructuring Support Agreement, the Ad Hoc Noteholder Group has agreed to provide commitments for a debtor-in-possession facility (the "DIP Facility") of up to $56 million and has agreed to support the syndication of up to an additional $19 million in new money DIP Facility loans to all holders of convertible notes.  These funds, along with ongoing cash generated from operations, are anticipated to provide the necessary financing to effectuate the planned restructuring, facilitate the emergence from Chapter 11, and cover the fees and expenses of legal and financial advisors.  

The Restructuring Support Agreement will be subject to a "fiduciary out" for the Company to pursue better alternatives.  As contemplated, the restructuring will reduce the Company's funded indebtedness by hundreds of millions of dollars and reduce annual interest expense by tens of millions of dollars.      

Pursuant to the contemplated Restructuring Support Agreement, the Company's existing convertible noteholders will equitize their debt into a significant majority of the common stock of the reorganized company.  In addition, holders of general unsecured claims and existing common shareholders would also receive meaningful recoveries in the form of reorganized common stock and warrants exercisable for significant portions of the common stock of the reorganized enterprise upon obtaining certain valuation thresholds.  Both the common stock and the warrants will enable stakeholders to capture a share of the Company's future growth.         

The filing of these cases was necessitated by a decline in the Company's operating performance and liquidity suffering from the prolonged decrease in the price of bitcoin, the increase in electricity costs necessary to power the Company's data centers, and the failure by certain of its hosting customers to honor their payment obligations.  In response to these factors, the Company has actively taken steps to decrease monthly costs, delay construction expenses, reduce and delay capital expenditures and increase hosting profitability.

The Company extensively explored potential financing alternatives and actively negotiated with various stakeholders. In consultation with its advisors, the Special Committee of the Board of Directors of the Company determined that the restructuring contemplated by the Restructuring Support Agreement represents the optimal path forward and best positions the Company for long-term success.

Core Scientific is being advised by Weil, Gotshal & Manges LLP as its legal advisor, AlixPartners, LLP as its financial advisor and PJT Partners LP as its investment banker.

For additional information about the cases, click here.  

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