Celsius Obtains Permission to Sell Mined Bitcoin; Lenders line up

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The judge who oversees the Celsius network
CEL
The bankruptcy case on Tuesday gave the company permission to sell newly mined bitcoin after the exchange overcame opposition from unsecured creditors, though the decision came despite continued objection from the US Department of Justice.

Lawyers representing the exchange said it had potential lenders to fund the bankruptcy, although it did not identify them. They also said that Celsius wanted to invest in increasing its crypto-mining operations in order to get out of trouble, explaining why it had budgeted high capital expenditures even as it burned through its cash.

Celsius amended its proposal to clarify that proceeds from bitcoin sales generated by its mining rigs will be segregated from the company’s cash management system, satisfying creditors, many of whom are individual investors whose assets are tied to bankruptcy. Before approving the motion, Judge Martin Glenn expressed concern that the mining business is unprofitable, and Shara Cornell, the U.S. trustee representing DOJ interests, opposed the motion. arguing that there was not enough clarity about the transaction to approve it.

“What really concerns us in this case is transparency and we don’t have that kind of visibility into mining operations,” Cornell said. “For example, we do not understand at this stage what the debtors’ utility costs are for operating these mining rigs.”

At the time of its July 13 filing for bankruptcy, the company’s Celsius Mining unit had 43,623 operating rigs, generating about 14.2 bitcoins — about $339,919 at current prices — per day. This bitcoin was sold to fund business operations and repay a business-to-business loan to parent company Celsius Network. Prior to the filing, Celsius Mining planned to expand to 120,000 rigs. Bitcoin sales will be used to complete the expansion plan and fund operations.

“We’re putting the company on its feet,” said Ross Kwasteniet of Kirkland & Ellis, who represents Celsius. “We still have a lot of capital expenditure, but there is a plan that once the capital expenditure is done and the mining rigs are all up and running, the company becomes very accretive.”

In 2021, Celsius Network mined 3,114 bitcoins worth $74 million at current prices. If the expansion plan goes as planned, Celsius expects to generate 15,000 bitcoins for 2023 worth $357 million today. Mining companies are subject to bitcoin price volatility and there is no guarantee of profitability after making the investment.

Judge Glenn seemed particularly concerned about the $180 million in funds in deposit accounts, which belong to users who did not agree to have their funds loaned out with the promise of high returns, as opposed to Celsius account holders. . Judge Glenn noted that many of the client letters submitted to the court were from custodial account holders, adding that he wanted the issue resolved “as soon as possible”.

The judge expressed concern that the custodial accounts were only created in April this year. He wants to be assured that Celsius employees and insiders knowing the company’s state of decline have not been given the exclusive option of transferring their funds from earnings accounts to deposit accounts.

The motion came during the second-day hearing of the case, as first-chance attorneys for the company and its creditors faced off in court. Kirkland & Ellis’ Josh Sussberg said Celsius urgently needed funding to operate beyond October. He said several lenders are willing to provide debtor-in-possession financing, which would help the company navigate the bankruptcy process, but create a new class of creditors above those that already exist.

“We are very focused on ensuring we have liquidity, and I’m happy to report that we have several deals in the works and several more are likely to come,” Sussberg said. “It will be a function to work with the [unsecured creditors] committee and coordinate with them to find the best way to fund the resolution of this case.

Sussberg reportedly did not identify potential lenders. A budget released earlier this week predicted the company would have spent its $130 million in cash plus $34 million more by the end of October. Celsius Network will need to reach a funding agreement with unsecured creditors before action can be taken.

The judge also answered questions from individual unsecured creditors who expressed outrage and confusion over the loss of their funds. The court received approximately 300 letters from Celsius customers involved in the bankruptcy proceedings.

“I feel very misled by this company who continually told us that they had enough cash in case there was a run on the bank and that they were more than liquid,” Steven Bralver, a customer who said they have 50,000 USDC
USDC
in his Celsius account, shared. “I have less than $500 in my checking account right now and I can’t afford to keep a roof over my family’s heads.”

Sussberg said Celsius Network’s priority is to return funds to customers. He pointed to an increase in the respective prices of bitcoin and etheruem since Celsius filed for bankruptcy in early July. Bitcoin
BTC
is up 20% since filing date and Ether
ETH
uh 71%. He pointed out that Celsius plans to reimburse customers in crypto assets, not fiat currency.

“I want to be crystal clear,” Sussberg said, “the business plan and transactions we envision would put all of the value associated with the rise of crypto over the past few weeks directly into the pockets of our customers.” .

Tension erupted over a motion filed by Celsius asking the company to be able to sell “de minimis” assets valued between $300,000 and $4 million without prior court approval. The purpose of asset sales would be to provide liquidity for general operations, similar to the purpose of bitcoin sales. Cornell, the US administrator, said Celsius Network was seeking to sell up to $210 million in shares, which were not described in the application. “I don’t believe there has been transparency about the true intentions of debtors with respect to what they consider to be ‘de minimis’ assets,” Cornell said. Judge Glenn ordered Celsius Network to confer with the trustee’s office and did not resolve the motion.

Cornell added that his office is considering appointing a reviewer to explore “rampant transparency issues” in the Celsius case. Ultimately, Judge Glenn ruled in favor of the revised bitcoin sale petition because it is a business decision of the company.

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