Stronghold Digital to restructure $18M debt with convertible preferred shares

Stronghold Digital Mining announced on Jan. 3 that it has reached an agreement with its noteholders to restructure $17.9 million of outstanding debt.

Notes are like an IOU from a borrower to a lender and constitute an obligation to pay regular interest to the lender in addition to the repayment of the principal at a future date. Therefore, noteholders effectively refer to investors or lenders of the company.

Under the agreement, the 10% convertible notes representing a debt of $17.9 million, including principal and interest accrued through maturity, will be extinguished. In exchange, Stronghold Digital will issue a series of convertible preferred stocks with a face value of around $23.1 million to the noteholders, it said in a press release.

The preferred stock can be converted to Stronghold Digital’s Class A common stock at a conversion price of $0.40. If all the preferred shares to be issued are converted, 57.8 million common stock shares will be issued, representing around 46% of the total common stock pool, the firm said.

The preferred shares to be issued will not carry any dividend and will not require any cash payments related to amortization, coupon payments, or other payments, the firm added.

Stronghold expects to carry out the exchange of notes for convertible preferred shares by Feb. 20. The exchange requires approval from stockholders and Nasdaq.

Greg Beard, co-chairman and CEO of Stronghold Digital, said in the press release that the deleveraging transaction will materially reduce the debt burden and improve the firm’s liquidity. He added:

“We acknowledge the significant number of shares of common stock that could be issued as a result of the Exchange Agreement, but we believe this is necessary to preserve cash, reduce our financial obligations, and better position the Company to survive a potentially prolonged crypto market downturn.”

Beard said that after the completion of the transaction, the firm’s total outstanding principal debt will fall below $55 million.

As of the end of 2022, Stronghold Digital had $12.4 million in cash and 6 Bitcoin (BTC) worth a little less than $100,000 at current prices. In its third quarter 2022 earnings report, Stronghold reported having $27 million in cash and 19 BTC worth just under $300,000 at the time.

Over the past year, Stronghold Digital’s share price has declined 96.43% from $13.16 to just $0.47.

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