Nasdaq-listed bitcoin miner Iris Energy Limited (NASDAQ:IREN) is poised to default on US$103mln worth of outstanding loans, according to the company’s latest filing with the Securities and Exchange Commission (SEC).
But given the Australian company’s savvy use of special-purpose vehicles (SPVs), the bad debt is unlikely to spread to the wider corporate body.
Iris Energy, which touts “sustainably mined bitcoin” credentials, has three wholly owned ‘Non-Recourse SPVs’ that were “each incorporated for the specific purpose of financing certain miners.
As the name suggests, these non-recourse SPVs were intentionally structured for what Iris calls “prudent risk management to protect the underlying business”.
Since the bad debt is contained in only two out of three SPVs, it seems certain that Iris is willing to foreclose all equipment owned by two arms of the company in order to save the third.
Per the SEC filing: “Unless a suitable agreement is reached with the lender on modified terms for both equipment financing arrangements, the group does not intend to provide further financial support to Non-Recourse SPV 2 and Non-Recourse SPV 3.
“In this case, the company expects that neither of those Non-Recourse SPVs will be able to make the scheduled principal payment on November 8, 2022, which would result in a default for those Non-Recourse SPVs.”
The company announced that it is using prepayments made to ASIC manufacturer Bitmain in order to secure more machines.
IREN shares dipped over 6% following the SEC disclosure, but just like every other major cryptocurrency mining company, year-to-date losses have been crippling.
Iris Energy has lost over 82% of its market value in 2022, due to soaring energy bills, higher mining difficulties, and a US$2tn rout on the crypto markets.
Struggling miners cause bitcoin headwinds
Core Scientific, one of the world’s largest bitcoin miners, is facing bankruptcy fears. Its share price has fallen a staggering 98% in 2022 so far.
As some of the largest holders of bitcoin globally, bitcoin miners are highly influential to the market for one main reason.
Since these companies derive revenue from procuring bitcoin, their revenues rally and decline in tandem with the world’s largest cryptocurrency’s price swings.
When margins become squeezed and profits take a nosedive, miners inevitably dig into their bitcoin stockpiles to prop up the bottom line.
This causes downward pressure on prices as the market gets flooded with bitcoins being sold for realised losses.
Thankfully bitcoin has somewhat stabilised of late, having changed hands above the key US$20,000 support line for the past nine days.