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Greenidge Generation is a bitcoin mining firm that has recently reached a deal with its lender NYDIG to restructure $74.7 million of debt. While the deal is currently in the form of a non-binding term sheet, it is still possible that Greenidge will file for bankruptcy. The firm has stated that its cash burn is unsustainable and that its board is actively considering the possibility and timing of a voluntary bankruptcy filing. If the deal with NYDIG is finalized, Greenidge will still need $20 million in fresh funding by 2023 in order to avoid bankruptcy.
The Debt Restructuring Deal with NYDIG
Under the proposed deal, NYDIG will purchase 2.8 exahash per second (EH/s) worth of Greenidge’s bitcoin mining machines and will extinguish $57 million-$68 million of the debt. This will leave Greenidge with 1.2 EH/s of machines, and the miner will also pledge the rest of its unencumbered assets to secure the rest of the loan, which will be between $6 million and $17 million. Prior to reaching a deal with NYDIG, Greenidge had estimated that it would need to spend a minimum of $66.5 million in principal payments throughout 2023.
As part of the deal, Greenidge will host NYDIG’s machines, effectively changing its business model from self-mining to hosting. Hosting has proved to be a difficult business model to maintain in 2022, particularly for miners like Greenidge that are exposed to natural gas prices. Greenidge’s costs of revenues, which come from both mining bitcoin and selling energy produced in its natural gas plant in upstate New York, grew by 104% year-on-year in Q3, according to Greenidge’s quarterly earnings report.
Greenidge will host up to 74 megawatts (MW) of NYDIG’s machines. As of September 30, Greenidge “powered approximately 76 MW of mining capacity capable of producing an estimated aggregate hash rate of 2.4 EH/s.” The firm owns a 106 MW natural gas power plant in New York. Greenidge will also transfer its coupons with machine manufacturer Bitmain to NYDIG. Within three months of the debt restructuring and hosting deals being agreed upon, Greenidge will also transfer machines awaiting deployment to NYDIG, and later provide the lender with an additional 39 MW of hosting.
Financial Struggles and Potential Bankruptcy
Greenidge is one of several miners that have warned about cash burn rates, including Argo Blockchain and Core Scientific. During October and November, Greenidge burned through $8 million a month, of which $5.5 million went towards NYDIG payments. It expects the same cash burn rate for December, which would put a significant dent in its remaining $22 million of cash and cash equivalents. If Greenidge does not secure funding, it may run out of cash in the next two months.
In addition to its financial struggles, Greenidge has also faced regulatory issues in its home state of New York. This summer, the company’s air permit renewal was denied due to environmental concerns.
The debt restructuring deal with NYDIG represents a potential lifeline for Greenidge, but the company will still need additional funding in order to avoid bankruptcy. The firm’s transition from self-mining to hosting may help it navigate the challenging business environment, but it remains to be seen whether this will be enough to secure its long-term viability. Greenidge’s financial struggles and regulatory issues are indicative of the challenges facing the bitcoin mining industry as a whole, and highlight the importance of careful planning and risk management for companies in the industry. In order to survive in the highly competitive and rapidly evolving world of bitcoin mining, firms must be able to adapt to changing market conditions and regulatory landscapes. Greenidge’s experience serves as a cautionary tale for other miners, reminding them of the importance of maintaining financial stability and staying ahead of potential regulatory hurdles.
