Celsius gets permission to sell mined Bitcoin; Requirements Lenders in line
Alex Mashinsky, founder and CEO of Celcius Network Ltd., during a panel session … [+]
The judge who oversees the Celsius Network
Lawyers representing the exchange said they had potential lenders to provide bankruptcy financing, although they did not identify them. They also said Celsius is looking to invest in growing its crypto mining operations as a way to expand itself out of trouble, explaining why it has budgeted for increased capital spending even as it burns through cash.
Celsius amended its proposal to specify that revenue from the sale of bitcoins generated by the mining rigs would be kept separate from the company’s cash management system, satisfying creditors, many of whom are individual investors whose assets are tied up in the bankruptcy. Before approving the motion, Judge Martin Glenn expressed concern that the mining operation is not profitable, and Shara Cornell, the US trustee representing DOJ interests, objected to the motion, arguing that there is not enough clarity about the operation to approve it.
“What we’re really concerned with in this case is transparency, and we don’t have that kind of visibility in mining,” Cornell said. “For example, we have no understanding at this time what the debtors’ utility-related costs are to operate these mining rigs.”
As of the July 13 bankruptcy filing, the company’s Celsius Mining unit owned 43,623 operating rigs, generating about 14.2 bitcoins — about $339,919 at today’s prices — per day. That bitcoin was sold to finance business operations and pay off an intercompany loan to parent Celsius Network. Before the filing, Celsius Mining planned to expand to 120,000 rigs. The Bitcoin sale will be used to complete the expansion plan and fund operations.
“We’re making the business stand up,” said Ross Kwasteniet of Kirkland & Ellis, which represents Celsius. “We still have a lot of capital expenditure, but there is a plan that once the capital expenditure is done and all the mining rigs are operational, the company will be very active.”
In 2021, the Celsius Network mined 3,114 bitcoins worth $74 million at current prices. If the expansion plan goes according to plan, Celsius expects to generate 15,000 bitcoin by 2023 worth $357 million today. Mining operations are subject to bitcoin price volatility and there is no guarantee of profitability after the investment.
Judge Glenn seemed particularly concerned with the $180 million in funds in escrow accounts, which belong to users who did not agree to have their money lent out with the promise of high returns, unlike Celsius serving account holders. Judge Glenn noted that many of the customer letters sent to the court are from custodians, adding that he wants a solution to the problem “sooner rather than later”.
The judge expressed concern that the repositories were created as late as April this year. He wants to be sure that Celsius employees and insiders with knowledge of the declining state of the business did not have an exclusive opportunity to transfer their money from earn accounts to custodians.
The request came in the second day hearing of the case, the first chance lawyers for the company and its creditors had to go to court. Josh Sussberg of Kirkland & Ellis said Celsius urgently needed funding to operate beyond October. He said more lenders are willing to provide debtor-in-possession financing, which would help the company navigate the bankruptcy process, but would create a new class of creditors senior to those that already exist.
“We’re very focused on making sure we have liquidity, and I’m happy to report that we have several offers outstanding, with more likely to come in,” Sussberg said. “This will be a function of working with [unsecured creditors] committee and coordinate with them to determine the best way to finance the resolution of this matter.”
Sussberg would not identify potential lenders. A budget circulated earlier this week estimated the company will have used its $130 million cash on hand plus $34 million more by the end of October. Celsius Network must reach a financing agreement with the unsecured creditors before any action can be taken.
The judge also took questions from individual unsecured creditors who expressed outrage and confusion at the loss of their funds. The court has received around 300 letters from Celsius customers who are affected by the bankruptcy proceedings.
“I feel very misled by this company who continuously told us that they had enough money in case of a run on the bank and that they were more than liquid,” Steven Bralver, a customer who said he has $50,000 USDC
Sussberg stated that Celsius Network’s priority is to return funds to customers. He pointed to a jump in bitcoin and ethereum’s respective prices since Celsius filed for bankruptcy in early July. Bitcoin
“I want to be crystal clear,” Sussberg said, “the business plan and the transactions we are considering will put all the value associated with the rise of crypto in recent weeks directly back into the pockets of our customers.”
The tension sparked a motion filed by Celsius asking the company to be able to sell “de minimis” assets worth between $300,000 and $4 million without prior court approval. The goal of the asset dispositions will be to provide liquidity for general operations, similar to the goal of the bitcoin sale. Cornell, the US trustee, said Celsius Network was looking to sell shares for up to $210 million, which was not disclosed in the request. “I don’t think there has been transparency about what the debtor’s true intentions are with regard 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 her office is considering appointing an examiner to explore “widespread transparency issues” in the Celsius case. Ultimately, Judge Glenn ruled in favor of the revised bitcoin sale motion because it is a business decision by the company.
