Bitcoin Miner Iris Energy On Verge of $103 Million Loan Default

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2 years ago

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Iris Energy follows Core Scientific and Argo Blockchain as the latest industry heavyweight that will likely fail to pay off its debt.

Yet another major North American Bitcoin miner is looking ill-prepared to pay off its debts before the end of the year.

This time it’s Iris Energy – a sustainability-focused miner that recently revealed its monthly profits to be well under its interest payment obligations.

Iris Energy’s Mining Margins

The British Columbia-based firm published an update on Tuesday concerning its financing arrangements with NYDIG, an institutional Bitcoin broker that provided Iris with financing for Bitcoin mining machines, called ASICs.

Iris stated that some of the Bitcoin miners owned by its special-purpose vehicles (SPVs) “produce insufficient cash flow” to cover their debt to the lender. It is currently amid restructuring talks with the lender.

The firm designed three Non-Recourse SPVs with the specific purpose of financing some of its miners. Across all three, Iris has $104 million of principal debt still outstanding. Iris clarified that this is the only debt it has.

At present, the Non-Recourse SPVs produce roughly $2 million in gross monthly profit by mining Bitcoin but are required to pay $7 million in monthly interest payments. Furthermore, the miners owned by the SPVs are only worth an estimated $65 million to $70 million – well under their initial purchase amount.

As such, Iris said it does not expect its second or third SPVs to make their scheduled principal payments on November 8th, which would end in default.

“The limited recourse equipment financing arrangements have been a recent focus for us. We remain committed to exploring a way in which we may be able to allow the lender to recover its capital investment,” said Iris Energy’s co-founder and co-CEO Daniel Roberts on the matter.

Roberts added that the SPVs were constructed to have a “minimal impact” on the overall company caused by a “protracted market downturn.”

IREN shares are down 15% on the day.

Effect on the Network

The ASIC machines borrowed by Iris will be returned to NYDIG in the event of default, meaning their cumulative hash power – 3.6 EH/s – could come offline. That’s 1.5% of the Bitcoin network’s total hash rate.

That’s not all: multiple other top Bitcoin miners are staring down bankruptcy this month after taking on more debt than the Bitcoin network could provide.

Core Scientific revealed last month that it might file for bankruptcy, and could possibly run out of funds by the end of the year. It has only 24 Bitcoin left on its balance sheet compared to over 7000 before June, and only $26 million in cash.

On Monday, Argo Blockchain’s stock plummeted 50% after revealing negative cash flow, and may be forced to cease operations if it can’t secure more financing.

Bitcoin’s total hash rate has only continued to rise since June while its price remained stagnant near $20,000 – a deadly combination that makes profitable mining more difficult than last year. That said, a capitulation of multiple major miners could make it slightly easier for competitors to stay afloat.