Bitcoin mining provider Compute North files for bankruptcy

    24 Sep 2022

    Compute North, the US-based Bitcoin mining hosting provider, has filed for Chapter 11 bankruptcy protection in a federal court, citing the decline in Bitcoin pricing and power costs rising. In addition to general market conditions, a shift in the relationship with its biggest creditor, Generate Capital, led the firm to enter the Chapter 11 process.

    The bankruptcy filing was issued on Sept. 22 in the US Bankruptcy Court for the Southern District of Texas.

    “After any administrative expenses are paid, no funds will be available for distribution to unsecured creditors,” the filing reads.

    Kristyan Mjolsnes, head of marketing and sustainability, said the company is seeking “the opportunity to stabilize its business and implement a comprehensive restructuring process. It will enable us to continue servicing our customers and partners and make the necessary investments to achieve our strategic objectives.”

    Earlier this year, the company raised $385 million in equity and debt funding to finance its new Bitcoin mining data centers. The deal was structured as $85 million in equity funding from Mercuria, a global energy and commodities trading company, Generate Capital, an infrastructure investment firm, and other investors, and $300 million from Generate Capital.

    Compute North also raised $25 million in equity and debt from Post Road Group, a US-based private investment group. According to the filing, the company currently has from $100 million to $500 million both in estimated liabilities and estimated assets.

    The list of Compute North’s clients includes the world’s largest Bitcoin mining companies, such as Marathon, which recently started energization at a collocated 280-megawatt Bitcoin mining facility in West Texas. The two companies also closed an additional 42-megawatts hosting deal this summer.

    Compute North’s counsel filed a declaration from Chief Financial Officer Harold Coulby, giving insight into the events that led the firm to file for bankruptcy in the bankruptcy court for the Southern District of Texas Houston Division.

    Like other bankruptcy cases in the news, Coulby pointed to the effects of a bear market on the firm’s liquidity, which affected its ability to execute planned projects.

    “From the supply chain and inventory issues to the dislocation in the capital and cryptocurrency markets, Compute North has been unable to maintain sufficient liquidity to bring planned projects in development online and pay all of its obligations on a current basis,” Coulby’s declaration said.

    That dislocation of capital includes a change in relationship with its biggest funding source, Generate Capital. Generate agreed to lend up to $300 million to the firm in February of this year to pay the advanced costs of project developments. Within that agreement, Generate purchased 1% of preferred equity and retained the right to refuse to finance future projects and the right to appoint a director to Holdings’ board of directors. 

    According to Coulby, in July of this year Generate utilized terms of the contract to take control of aspects of Compute North’s business that preclude Generate from being a debtor in this bankruptcy case. Just over $100 million of the credit extended by Generate capital remains outstanding, he said.

    “Compute North’s loss of control over the Generate Entities contributed to business disruptions leading up to the commencement of these Chapter 11 cases,” Coulby said. 

    The controversy with Generate left Compute North unable to continue funding in-progress data centers, some of which the firm had already deployed millions towards. Compute North sought another financing by offering to sell certain assets, among other funding solutions, including advanced negotiations with Generate and other parties. “None of these sale or financing transactions were able to be consummated within the time frame available to Compute North to effectuate an out-of-court restructuring,” said Coulby.

    That, with the rising energy costs, left the firm with no option but to enter Chapter 11, according to Coulby.

    “Compute North expects to effectuate either a reorganization of its business resulting in a scaled-down organization focusing on ownership and project management of certain facilities (as defined below) or a sale of Compute North’s facilities as a going concern,” Coulby said in the declaration.

    In July, Compute North’s founder and CEO Dave Perrill told The Block that the company planned to increase its capacity by 1.2 gigawatts over the next 12 months. Currently, the company has two active sites in Texas, one in South Dakota and one in Nebraska, and also developing a third one in Texas with a 300-megawatt capacity.

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