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Crypto Mining Firm Rhodium Encore Granted Permission to Take Bitcoin Loan in Chapter 11 Bankruptcy

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Aug 31, 2024 pm 03:13 PM

Rhodium Encore Bitcoin Loan Court Approval

Crypto mining firm Rhodium Encore LLC has been granted permission by a court to undertake a peculiar financing plan in the course of Chapter 11 bankruptcy.

Crypto Mining Firm Rhodium Encore Granted Permission to Take Bitcoin Loan in Chapter 11 Bankruptcy

Bankruptcy court has approved a unique financing plan for crypto mining company Rhodium Encore LLC during its Chapter 11 proceedings.

On Friday, the court gave the company permission to choose between receiving $30 million in US dollars or 500 Bitcoin from Galaxy Digital, a blockchain company founded by Mike Novogratz, to fund its bankruptcy.

The striking aspect of this deal is the option to obtain a loan in Bitcoin, which is uncommon in bankruptcy funding strategies. The loan to be taken in US dollars has a higher interest rate.

According to Bloomberg, the dollar loan interest rate is 14.5% per annum, while the Bitcoin loan interest rate is slightly lower at 9.5%. Rhodium can repay the Bitcoin loan in US dollars before the maturity date at a rate based on "reasonable published market spot prices" with the lender's consent.

Despite several crypto firms failing recently, funding through cryptocurrency is not common, even in Chapter 11. This is because the price of Bitcoin is highly volatile, making it difficult to estimate the total loan repayments, increasing the risk in the financing.

Rhodium Encore, which owns and operates Bitcoin mining facilities in Texas, filed for bankruptcy in August after encountering financial difficulties with its landlord and power supplier, Whinstone US, Inc., according to David Dunn, Rhodium's co-chief restructuring officer.

This move highlights the evolving landscape of bankruptcy financing in the crypto space, where traditional financial paradigms are being challenged by new approaches.

Also Read: Ikigai Strategic Partners Fined $150,000 by NFA for Misusing Bitcoin Loan

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