Rhodium Enterprises, a Bitcoin mining company that recently filed for bankruptcy, has been granted court approval to secure a loan in either United States dollars or Bitcoin. The company now has the option to choose between a $30 million loan or 500 Bitcoin from Galaxy Digital, a prominent blockchain firm led by Mike Novogratz.
Loan Terms and Conditions
According to a Bloomberg report, if Rhodium opts for the U.S. dollar loan, it will incur a 14.5% annual interest rate. Alternatively, the Bitcoin loan comes with a lower interest rate of 9.5%, making it a potentially more cost-effective option depending on market conditions. Notably, Rhodium has the flexibility to repay the Bitcoin loan in U.S. dollars, using the “reasonable published market spot prices” at the time of repayment before the loan’s due date.
A Unique Approach to Bankruptcy Financing
This approval marks an unusual strategy for bankruptcy financing within the crypto industry, primarily due to Bitcoin’s notorious price volatility. The fluctuating value of Bitcoin makes it challenging to estimate the total cost of loan payments, regardless of the interest rate applied. Over the last month, Bitcoin’s price has dropped by nearly 11%, according to CoinMarketCap data, further complicating the financial landscape for Rhodium.
Rhodium’s Bankruptcy Filing and Financial Standing
Rhodium Enterprises filed for voluntary bankruptcy under Chapter 11 on August 24 in the U.S. Bankruptcy Court for the Southern District of Texas. The filing revealed the company’s liabilities, which could reach up to $100 million, and included six subsidiaries: Rhodium Encore, Jordan HPC, Rhodium JV, Rhodium 2.0, Rhodium 10MW, and Rhodium 30MW. The company’s total assets are valued between $100 million and $500 million.
Filing for Chapter 11 allows Rhodium to continue operations while reorganizing its debts, giving the company the opportunity to negotiate a new repayment plan under more favorable terms.
Financial Pressure on Bitcoin Mining Firms
Rhodium’s financial struggles are not isolated. The broader Bitcoin mining industry has been under significant pressure, particularly following the Bitcoin halving in April, which reduced mining rewards. Many miners have also faced challenges related to mounting debt and previous financial mismanagement.
According to a recent JPMorgan report, cash-rich mining firms like Riot Platforms and Cleanspark have acquired other miners with turn-key facilities to boost their near-term hashrate and expand their power pipelines. In contrast, capital-constrained miners such as Iren and Cipher have focused on securing greenfield opportunities that require less immediate capital investment.
In a related development, on August 21, Bitcoin mining firm Bitfarms announced its acquisition of Stronghold Digital Mining for approximately $125 million, including assumed debt of around $50 million.
