In further crypto contagion, Bitfarms Ltd (TSX: BITF) this morning revealed that it is undergoing financial difficulties to some degree. The firm is currently considering defaulting on one of its equipment facilities as a means of entering renegotiation discussions.
The loan in question is an equipment financing facility entered into in February 2022 with BlockFi Lending via the firms Backbone Mining Solutions subsidiary. Initially pegged at $32 million, the loan is said to currently consist of a $20 million in outstanding debt, and is secured by equipment and certain bitcoin produced by the miners at the subsidiaries facility in Washington.
READ: By The Numbers: Bitcoin Miners Are Burning Cash On Each Coin Mined
Given the current losing trade on producing bitcoin, and the declining value of bitcoin mining equipment, those assets are said to be worth just $5.0 million now – meaning the loan to value is roughly 400%. Naturally, Bitfarms as a result is looking for more favourable terms as a result of being so heavily underwater on any perceived value.
The company is said to have already “taken certain actions,” although specifics were not provided, on how to rectify the situation. The firm also suggested it is considering not making installment payments on the debt to force a default, which would enable BlockFi to enforce certain rights in relation to the the collateral. In short, Bitfarms is suggesting it might lose its 20MW Washington production facility as a result of the gamble it might take in an attempt to reduce its debt obligations – although on the balance, it might not be a bad strategy, considering what little value is currently secured by the debt.
READ: Bitfarms Improves December Production 9% While Continuing To Sell Off Bitcoin Holdings
Bitfarms has indicated it had cash and unencumbered crypto worth $36 million as of December 31, which is estimated to be enough to continue to make payments for the firms other loan agreements, as well as to support its ongoing operations. The figure represents a decline from $42.4 million as of September 30, which doesn’t include an additional $8.6 million in prepaid expenses.
Debt however currently totals $47 million, which includes the $20 million due under the BlockFi loan.
The potential default follows a management shake-up that was enacted at the tail end of December. CEO and co-founder, Emiliano Grodzki, exited the firms C-suite in favor for a position on the firms board. Taking his is Geoffrey Morphy, whom previously held the role of Chief Operating Officer at the company.
Bitfarms last traded at $1.32 on the TSX.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
