After unveiling a reorganization strategy, Core Scientific Inc. (NASD: CORZ) saw a 47.06% increase to $0.0750 in pre-market trading hours on the most recent check Thursday.
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What strategy has CORZ disclosed?
According to Core Scientific (CORZ), it plans to sign a restructuring support arrangement (the “Restructuring Support Agreement”). Core Scientific made the decision to engage in the Agreement with the Ad Hoc Noteholder Group, which represents more than 50% of the holders of its convertible notes, after carefully weighing all of its options and holding in-depth conversations with several Company stakeholders.
On December 21, 2022, CORZ voluntarily filed writs for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas in order to carry out the extensive restructuring transaction envisioned by the Restructuring Support Agreement. Core Scientific intends to complete the reorganization process quickly.
CORZ will continue to run its current self-mining and hosting businesses during this process and beyond emergence, which are still considerably positive cash flows on a debt-free basis. Throughout the execution of its restructuring, Core Scientific is dedicated to doing business as usual. In its cutting-edge data centers, the Company is still committed to offering hosting services and self-mining.
The Ad Hoc Noteholder Group has agreed to give obligations for a debtor-in-possession facility in conjunction with the Restructuring Support Agreement (the “DIP Facility”). It agreed to facilitate the origination of up to an additional $19 million in fresh money DIP Facility financing to all holders of convertible notes. That DIP Facility is for up to $56 million. These monies are expected to provide the required finance for the proposed reorganization, allow the exit from Chapter 11, and pay the fees and costs of legal and financial experts, together with continuous cash earned from operations.
The Restructuring Support Agreement will include a “fiduciary out” clause that will allow CORZ to look into better options. As planned, the restructuring will result in a reduction of hundreds of millions of dollars in financed debt for CORZ as well as a tens of millions of dollars yearly reduction in interest costs.
What caused CORZ to make that choice?
The prolonged decline in the price of bitcoin, the rise in the cost of electricity required to power the Company’s data warehouses and the failure of some of its ability to host customers to honor their financial obligation all contributed to a decline in CORZ’s operating performance and liquidity, which in turn forced the company to file these lawsuits. Core Scientific (CORZ) has aggressively taken action to minimize monthly costs, postpone building costs, cut and postpone capital expenditures, and boost hosting profitability in response to these issues.
