Core Scientific Shares Drop 10% After Announcement of $400M Convertible Senior Notes Offering

A senior convertible note is a type of debt security that can be converted into equity at a later date and accrue interest payments for the investor over time.

Bitcoin miner Core Scientific is offering up to $400 million in convertible senior notes to investors, a slight increase from the initial $350 million announced a day earlier.

A senior convertible note is a type of debt security that can be converted into equity at a later date. As the name suggests, it's a senior security, meaning that investors who hold these notes will be paid out before junior creditors in the event of a bankruptcy. Accruing interest payments for the investor over time, it's a form of debt for the company.

The offering will be made in a private offering only to qualified institutional buyers, as defined in Rule 144A under the Securities Act of 1933, said Core Scientific in an Aug. 14 media release.

“Investors can choose to hold the senior, unsecured debt until maturity or convert it into shares. Interest will be paid out semi-annually,” the company added.

The notes will mature on Sept. 1, 2029 unless earlier converted, redeemed, or repurchased. The offering could also include a stipulation that purchasers can buy an additional $60 million in notes.

Settlement is scheduled for Aug. 19.

Core Scientific shares dropped over 10% on Aug. 14 following the announcement. At the close of the market on the Nasdaq, the stock fell 10% to reach $8.46 per share. However, after hours, it recovered by 1% to reach $8.55.

The net proceeds will be used to repay outstanding loans under Core Scientific's credit and guaranty agreement entered into on Jan. 23, 2024 and fully redeem all of its outstanding senior secured notes due 2028, according to the statement.

“Core Scientific intends to use the remaining net proceeds from the offering for general corporate purposes, including working capital, operating expenses, capital expenditures, acquisitions of complementary businesses, or other repurchases of its securities,” the firm said.

In total, the miner expects to raise $386.6 million, or $445.0 million if investors choose to purchase additional notes.

Pushing through bankruptcy woesIn January, Core Scientific emerged from bankruptcy after the bankruptcy court for the Southern District of Texas confirmed its reorganization plan, allowing the company to scrap $400 million in debt and continue operating.

A combination of the crypto winter, rising energy prices, increased mining difficulty, and bad debt lent to crypto firm Celsius, led Core Scientific to file for bankruptcy in December 2022.

Despite the miner being able to push through bankruptcy and continue its operations, Core Scientific reported a massive net loss of $804.9 million for its second quarter of 2024, compared to a net loss of $9.3 million for the same period in the prior year, according to its Aug. 7 financial report.

However, the company is still in a relatively strong position. Year to date, Core Scientific says it has mined 5,052 Bitcoin ( BTC ) , worth over $300 million at current prices and has plans for long-term contracts that could net them $6.7 billion over 12 years.

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