Proposes debt restructuring to Principal Scientific Council to avoid bankruptcy

ANGELS, December 14, 2022 /PRNewswire/ — B. Riley Financial, Inc. (NASDAQ: RILY) (“B. Riley”), a diversified financial services platform that is a major creditor of Core Scientific, Inc. (NASDAQ: CORZ) (“Core Scientific” or “the Company”), today issued an open letter to Core Scientific shareholders and lenders.

In light of Core Scientific’s strategic alternatives process regarding its capital structure, B. Riley has committed to the company to restructure its debt and provide liquidity to avoid a potential unnecessary and destructive bankruptcy proceeding. valuable. We believe there is a way forward and have been proactive in finding a solution, in particular providing debt on a number of unencumbered assets. B. Riley urges the Company’s Board of Directors to work quickly with the creditors to reach a productive resolution for the benefit of all Core Scientific stakeholders.

The full text of the letter is as follows:

An open letter from B. Riley to Core Scientific shareholders and lenders

Dear Core Scientific Shareholders and Lenders:

On October 26, 2022, Core Scientific announced that it will suspend all principal and interest payments falling due in October and early November to several of its equipment lenders and for other financing, including its two bridge promissory notes. The Company also said it was exploring strategic alternatives with respect to its capital structure and suggested that all options, including bankruptcy, were on the table. Since then, Core Scientific common stock has fallen 86% and is currently trading at $0.15 per share, representing a market capitalization of approximately $50 million.

As one of Core Scientific’s major creditors, this announcement took us by surprise. Bankruptcy is not the solution and would not serve the Company’s investors. This will destroy value for the Company’s shareholders, reduce potential recoveries for the Company’s lenders, deplete its limited resources and create massive uncertainty for all of its stakeholders.

Moreover, bankruptcy is not necessary at all. In our view, the vast majority of Core Scientific’s problems are self-imposed and can be corrected in conjunction with open and transparent discussion and continued engagement with its creditors and shareholders. To this end, B. Riley proposed to the Board of Directors of Core Scientific to provide $72 million in new non-monetary financings remunerated at favorable conditions, offering more than two years of track to the Company to reach profitability. This is a far superior approach for all constituents, one that would avoid bankruptcy while preserving significant value for all Core Scientific stakeholders.

Our proposal and analysis are as follows. Core Scientific currently has approximately $300 million equipment and other loans (B. Riley’s loan outstanding is $42 million) which have a very short maturity. These loans were made when the price of Bitcoin was significantly higher than it is today and the theoretical gain on miners was significantly faster. These debts were incurred as part of an aggressive and ill-conceived strategy by the company to continue building power plants and developing mines without ever selling. Bitcoin handy and never cover prices. This approach led the Company to sell its entire inventory, representing 9,618 Bitcoins in April 2022 estimated at $362 million, at massive loss. This decision combined with the rapid maturity associated with mining has led the Company to its current position.

Our analyst, Lucas Pipeshas been following Core Scientific since February 102022. Based on his model, adjusted to current metrics, even at a Bitcoin price of $18,000Core Scientific can generate adjusted EBITDA of ~$140 million. Moreover, if the company builds the Denton, TX easy for a raise $40 million of capital, this could add an extra $25 million of EBITDA, resulting in a current EBITDA of ~$165 million. In addition to this, each $1,000 increase in the price of Bitcoin would probably add to $20 million of EBITDA, which means that if the price of Bitcoin should increase to $20,000adjusted EBITDA could exceed $200 million on a run rate basis. Whether Bitcoin prices go to $24,500we estimate that Core Scientific will generate close to $275 million of adjusted EBITDA to service creditors.

Our proposal is simple. It provides enough liquidity to avoid bankruptcy. B. Riley’s proposal does not purport to reduce the amounts owed to the Company’s equipment lenders. B. Riley is ready to finance the first $40 million financing immediately, without unforeseen events. For the remainder of the new funding proposed by B. Riley, to Bitcoin price of $18,500 and below, all principal payments to equipment lenders should be suspended until the price of Bitcoin goes back to $18,500. Once that happens, the proposal calls for free cash flow to be distributed to equipment lenders in the form of interest and partial principal payments until they are fully repaid. As Bitcoin continues to rise, additional free cash flow will be distributed in increasing amounts. In the meantime, all interest payments to equipment lenders (and to B. Riley himself under his ongoing bridging loan) would be paid in kind for one year to provide an additional lead for the company. . We have had extensive discussions with the Company’s equipment lenders and believe this route should be acceptable to them.

Convertible debt remains. There is no reason to settle this debt at this time. He has more than 2 years left to maturity and only $17 million cash interest payments. It’s a piece of paper that was put in place to withstand a drop in the price of Bitcoin. Addressing this now is pointless. If every oil producer had decided to restructure its debt two years ago when oil was trading in single digits, the only beneficiaries would have been those who participated in unnecessary restructuring.

Hurry up. We have extensive experience in advising and participating in a “review” process. It’s expensive and when the train starts it’s hard to stop. Fortunately, due to our involvement in the company, we are ready to move forward with our superior alternative proposition immediately. We are also prepared to work with all stakeholders to achieve the best outcome under the circumstances. In our view, it would be a gross violation of the fiduciary duties of the board and management for those fiduciaries – who must put our interests before theirs – to authorize a Chapter 11 filing.

We urge the Board of Directors to work with us quickly to reach a productive resolution for the benefit of all Core Scientific stakeholders.

Bryant Riley

About B.Riley Financial
B. Riley Financial is a diversified financial services platform that offers tailored solutions to meet the strategic, operational and capital needs of its clients and partners. B. Riley leverages cross-platform expertise to provide clients with comprehensive, collaborative solutions at every stage of the business lifecycle. Through its affiliated subsidiaries, B. Riley provides end-to-end collaborative financial services in the areas of investment banking, institutional brokerage, private wealth management and investments, financial advisory, corporate restructuring, operations management, risk and compliance, due diligence, forensic accounting, litigation support services, expertise and valuation, auctions and liquidation. B. Riley invests opportunistically for the benefit of its shareholders, and certain registered affiliates originate and underwrite senior secured loans for asset-rich companies. B. Riley means B. Riley Financial, Inc. and/or one or more of its subsidiaries or affiliates. For more information, please visit www.brileyfin.com.


Jo Anne McCusker
[email protected]
(646) 885-5425

Mike Frank
[email protected]
(212) 409-2424

SOURCE B. Riley Financial

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