July 18, 2023 – The Debtors filed a motion to extend (for a first time) the periods during which they have an exclusive right to file a Plan, and solicit acceptances thereof, through and including October 17, 2023, 2023 and December 18, 2023, respectively [Docket No. 1065]. Absent the requested relief, the Plan filing periods are scheduled to expire on July 19, 2023 and September 17, 2023, respectively.
The Debtors, who filed a first cut of their Plan and Disclosure Statement on June 20th, are hoping that Judge Isgur-led mediation set to commence on July 26th will unblock an impasse with convertible noteholders*, with the motion noting: "the biggest challenge to reaching global consensus will be bridging the gap with the Ad Hoc Noteholder Group regarding the appropriate allocation of value among secured creditors, unsecured creditors, and existing equity holders in a solvent-debtor case where there is material residual value available for equity holders after repaying all creditors in full. Unfortunately, despite repeated requests for engagement and having had the Debtors’ plan construct for over a month-and-a-half (May 31), the Debtors’ draft chapter 11 plan for over a month (June 16), and the Debtors’ filed Plan for almost a month (June 20), the Ad Hoc Noteholder Group has yet to respond with any counterproposal to the Debtors on the Plan.
* The Debtors have two classes of convertible notes which total over $600.0mn in principal. As drafted, the Plan has each of those two classes set to receive (if they vote in favor of the Plan…they get 100% in takeback notes if they don't) 50% of their claim in the form of new notes and 50% in equity…with the fight amongst the Debtors and noteholders set to be over how much of the emerged equity (or how much of "Plan Value") goes to the noteholders in respect of their of notes, before cascading down to general unsecured claim holders and equity classes.
On December 21, 2022, Core Scientific, Inc. and 10 affiliated debtors (NASDAQ: CORZ; together “Core Scientific” or the “Debtors”) filed for Chapter 11 protection noting estimated assets of $1.4bn; and estimated liabilities of $1.33bn (as at September 30, 2022). At filing, the Debtors, “a leader in high-performance blockchain computing data centers,” cited the “Crypto Winter,” power price increases, the Celsius bankruptcy, “significant overcommitments” in respect of construction costs (i.e., $200mn) and the failure to pay for leased equipment (then cross-defaulting their Senior Convertible Notes) as compelling their bankruptcy filing.
On December 23rd, the Court issued an order authorizing the Debtors to access $37.5mn in new money debtor-in-possession (“DIP”) financing, provided by certain prepetition secured lenders, on an interim basis.
On February 2nd, the Court issued an order authorizing the Debtors to access $35.0mn in new money replacement DIP financing from B. Riley Commercial Capital, LLC (“B. Riley” or the “Replacement DIP Lender”) and repay its existing DIP Lenders and on March 1st the Court issued a final order authorizing the Debtors to access the $35.0mn balance of what is in total $70.0mn of replacement, new money, DIP financing being provided by B. Riley.
On April 24th, the Debtors filed an objection asking the Court to disallow a total of $312.0mn in hosting agreement claims filed by Celsius Mining LLC.
On June 20th, the Debtors filed a Plan of Reorganization and a related Disclosure Statement [Docket Nos. 974 and 975, respectively].
The Extension Motion
The motion [Docket No. 1065] states, “[t]he Debtors have made meaningful progress towards confirming a value-maximizing chapter 11 plan and emerging from bankruptcy. After finalizing their updated business plan to reflect significant changes in the cryptocurrency and power markets, the Debtors developed a consensual plan framework. On May 31, 2023, the Debtors began presenting the consensual plan framework to each of their key stakeholder groups, including the Ad Hoc Noteholder Group, the DIP Lender (which is also the Debtors’ largest unsecured creditor), the Creditors’ Committee, the Debtors’ primary equipment lenders (the 'Equipment Lenders'), and the Equity Committee (collectively, the 'Key Stakeholder Groups'). Following three (3) weeks of frequent engagement with each of the Key Stakeholder Groups, on June 20, the Debtors filed the Plan and Disclosure Statement in accordance with the target filing date set by the Court at the May 22 hearing.
The Plan allows the Debtors to move forward under either a consensual path or a nonconsensual (cram-up) path. Under either path, the Plan provides for one-hundred percent (100%) recoveries to all classes of creditors and for all residual equity value to be distributed to equity holders and holders (if any) of allowed subordinated section 510(b) claims. The Debtors’ efforts have been — and will continue to be — focused on reaching as much consensus as possible leading up to, and following, the mediation (the 'Mediation') with the Honorable Marvin Isgur, which is scheduled to commence on July 26, 2023. All of the Key Stakeholder Groups have agreed to participate at the Mediation
Since filing the Plan and Disclosure Statement, the Debtors have narrowed the issues between the parties whenever parties have engaged with the Debtors and have progressed in negotiations with certain of the Key Stakeholder Groups, including (i) the Equipment Lenders (which hold a total of approximately $240 million in aggregate claims), (ii) the DIP Lender, (iii) the Creditors’ Committee, and (iv) the Equity Committee.
As the Debtors previewed at the June 29 status conference, the biggest challenge to reaching global consensus will be bridging the gap with the Ad Hoc Noteholder Group regarding the appropriate allocation of value among secured creditors, unsecured creditors, and existing equity holders in a solvent-debtor case where there is material residual value available for equity holders after repaying all creditors in full. Unfortunately, despite repeated requests for engagement and having had the Debtors’ plan construct for over a month-and-a-half (May 31), the Debtors’ draft chapter 11 plan for over a month (June 16), and the Debtors’ filed Plan for almost a month (June 20), the Ad Hoc Noteholder Group has yet to respond with any counterproposal to the Debtors on the Plan.
Given the current status of Plan negotiations, it is critical that the Debtors be allowed to continue to lead the chapter 11 plan process without the risks, costs, and disruption that would result from a competing plan process. The additional time requested will enable the Debtors to continue to build as much consensus as possible and move forward with solicitation and prosecution of a chapter 11 plan that maximizes value for all of the Debtors’ stakeholders.
In addition to progressing negotiations with the Key Stakeholder Groups, the Debtors have taken a number of other critical steps to maximize value for the Debtors’ estates and clear a path to confirmation and emergence, including, but not limited to, the following accomplishments:
- Capital Raise Process: The Debtors and their advisors have made significant progress in their ongoing efforts to raise new money capital to fund potential cash needs at and following emergence, including receiving a proposal from the DIP Lender (which the Debtors are currently negotiating) and other parties have expressed interest in potentially submitting proposals as well. The process remains ongoing and the deadline to submit indications of interest is July 20, 2023.
- Key Settlements and Agreements: The Debtors have entered into a number of key settlements with multiple M&M lien claimants asserting more than $80 million in aggregate M&M lien claims and a few key agreements with lease counterparties.
- Claims Reconciliation and Lease/Contract Review: The Debtors have also made significant progress (i) reconciling claims filed against the Debtors through claims objections and various settlements and (ii) reviewing their executory contracts and unexpired leases, including filing a motion to assume all of their unexpired real estate leases.”
About the Debtors
According to the Debtors: “Core Scientific is one of the largest publicly traded blockchain computing data center providers and miners of digital assets in North America. Core Scientific has operated blockchain computing data centers in North America since 2017, using its facilities and intellectual property portfolio for colocated digital asset mining and self-mining. Core Scientific operates data centers in Georgia, Kentucky, North Carolina, North Dakota and Texas. Core Scientific’s proprietary Minder® fleet management software combines the Company’s colocation expertise with data analytics to deliver maximum uptime, alerting, monitoring and management of all miners in the Company’s network.”
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