Core Scientific Files for Chapter 11 Bankruptcy While Entering Restructuring Agreement

Only days ago we reported on potential good news for the beleaguered mining outfit Core Scientific.  With Core Scientific desperately in need of fresh capital, due to a persisting down market and various ill-timed moves, B. Riley Financial was doing its best to come up with a solution.  It now appears as though this plan has failed to get off the ground, as Core Scientific just announced that it, and ten affiliated debtors, have voluntary filed for Chapter 11 Bankruptcy.

What Happened?

Sure, the market is down, but many miners have been able to weather the same conditions and continue operating as normal.  So what exactly happened with one of the worlds largest mining outfits?  Core Scientific explains,

“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.”

While it notes that various steps had been taken to avoid such an outcome (decreasing operational costs, delaying expansion, etc.), it simply wasn't enough to overcome the market and what B. Riley Financial previously described as an, “…ill-conceived strategy by the Company to continue to build out power facilities and expand miners while never selling Bitcoin on hand and never hedging prices”.

The Filing

In its announcement, Core Scientific notes 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 with the Ad Hoc Noteholder Group,”.  In order for this to occur however, Core Scientific must first file for Chapter 11 Bankruptcy.

The list of debtors included in this filing are as follows,

• Core Scientific, Inc.
• Core Scientific Mining LLC
• Core Scientific Acquired Mining LLC
• Core Scientific Operating Company
• Radar Relay, Inc.
• Core Scientific Specialty Mining (Oklahoma) LLC
• American Property Acquisition LLC
• Starboard Capital LLC
• RADAR, LLC
• American Property Acquisitions I, LLC
• American Property Acquisitions VII, LLC

Before Filing, Core Scientific acknowledges that it did indeed consider financing options like the one proposed by B. Riley Financial.

“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.”

The filing was submitted to the U.S. Bankruptcy Court for the Southern District of Texas.

Continuing Operations

In addition to noting its goal of moving “…swiftly through the restructuring process”, Core Scientific intends on continuing its operations like normal.  It notes that both its self-mining and hosting operations are not only debt-free, but continue to be ‘cash-flow positive'.

The capital generated from these continued operations is important, as it will supplement a DIP Facility provided by the Ad Hoc Noteholder Group valued up to $56M, earmarked for covering the costs of its planned restructuring.

Pending Lawsuit

Within an hour of officially announcing its Chapter 11 filing, The Gross Law Firm issued a press release of its own, looking to build a Class Action Lawsuit against Core Scientific.

The law firm is looking for any shareholders which purchased shares of CORZ between Jan 3. 2022 and Oct. 26, 2022.  The Gross Law Firm contends that during this period, Core Scientific issued statements misrepresenting the health of its operations – essentially lying to investors.

Those eligible have until January 13th, 2023 to complete a ‘Loss Submission Form'.