Stronghold Digital Mining announced its intention to convert Notes to equity in order to pay off $17.9 million in principal debt.
According to an SEC filing, Stronghold will extinguish $17.9 million in amended notes in exchange for $23.1 million in Class C preferred shares. The face value of a stock is the bare minimum that a shareholder must pay, as specified in the company’s charter. New Class C shareholders will be able to convert their shares to Class A common stock. The company anticipates issuing up to 57.8 million Class A shares.
The debt-to-equity conversion, according to the filing, will reduce Stronghold’s principal debt from $82 million to around $55 million. The mining company has set a deadline of February 20, 2023, to complete the transaction, which is subject to shareholder and Nasdaq approval.
“Following the Closing of the Exchange Agreement, which is currently expected to occur in February 2023,” Stronghold CEO Greg Beard said.
According to its earnings call for the third quarter of 2022, the miner returned 26,000 Bitcoin mining computers to the New York Digital Currency Group (NYDIG) and BankProv. This action eliminated $68 million in principal debt. It strengthened its balance sheet in October 2022 by securing equipment financing with lower monthly repayments.
As part of a hosting agreement with Foundry, the world’s largest Bitcoin mining pool, Stronghold shares 50% of the Bitcoin it mines, less energy costs. Stronghold also sells power to the grid when it makes more economic sense to do so than to mine Bitcoin.
Stronghold’s debt reductions strengthen its balance sheet at a time when other debt-laden miners are struggling to keep the lights on.
Mining difficulty dropped 3.6% in the last two weeks as some miners turned off their equipment.
The Bitcoin algorithm adjusts difficulty based on the average amount of time it takes to guess the correct hashes of the previous 2016 transaction block headers. When fewer machines compete to guess the correct hash, the difficulty decreases. When more machines compete for the correct answer, the difficulty rises.
A miner feeds a nonce variable into a hashing function in order to generate an output that is less than a predefined target value. When there are fewer miners online, the algorithm raises the target value, making it easier to produce a lower output.
A Bitcoin miner is rewarded with Bitcoin after proving he has done a certain amount of work to guess the correct nonce. The hashrate is a metric that measures the number of guesses he makes per second.
Some Bitcoin mining companies have sold hashrate in order to reduce debt repayments.
Greenidge, a New York-based hosting company, recently transferred 2.8 Exahashes per second (EH/s) of hashrate to NYDIG, while Stronghold agreed to return 2.5 EH/s of capacity to NYDIG in Q2 2022. Iris Energy, based in Sydney, announced that it would shut down 3.6 EH/s from two business operations due to insufficient cash flow.
Furthermore, other well-known companies have been forced to sell mined Bitcoin in order to improve their monthly cash flows.
In June 2022, Bitfarms sold 3,000 BTC to repay a $100 million loan from Galaxy Digital. Emiliano Grodzki, the company’s CEO, resigned in December 2022. Core Scientific, the public mining company with the most debt, sold over 7,000 BTC in the second quarter of 2022. The Austin, Texas-based company recently declared Chapter 11 bankruptcy.
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