Compute North files for Chapter 11 bankruptcy with $500M in debt

Compute North, one of the largest operators of data centers for BTC block reward miners, has become the latest casualty of the bear market and filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas.

The company operates data centers for some of the marquee names in BTC mining, including Marathon Digital (NASDAQ: MARA), BitNile (NASDAQ: NILE), Sphere 3D Corp (NASDAQ: ANY), HIVE Blockchain (NASDAQ: HIVE), and the troubled Compass Mining. It currently operates four data centers in the U.S.—one in South Dakota and Nebraska and two in Texas.

In its bankruptcy filing, Compute North blamed its woes on this year’s bear market, which has seen the profits for most miners dwindle, as well as the rising cost of electricity in the U.S. and the amount of time it takes between the construction of a new data center and it becoming profitable.

However, the biggest blow came from a loan that the data center company secured from Generate Lending LLC, a California-based financier Generate Capital subsidiary.

In February 2022, Generate lent Compute North $300 million to finance upcoming projects in Texas and Nebraska. While it was able to repay some of the money, about a third of it is still outstanding. 

In a bid to recover its money, Generate took over some of Compute North’s assets, including two of the sites that its money had gone towards building. They included one in Texas, which would run at 600MW and, upon completion, would have been the company’s largest.

Aside from taking over two sites, Generate also ceased funding the other sites that Compute North was constructing and which it hoped would generate enough profits to repay the lender’s loan. 

“Facing the threat of ongoing degradation to the value of its business, including the potential termination of contracts that Compute North may be able to assign in a sale transaction, Compute North had no choice but to commence these Chapter 11 Cases in order to preserve and maximize the value of its assets,” the filing read.

A Chapter 11 bankruptcy filing protects a firm from its creditors while allowing it to continue operations. This gives it enough breathing space to figure out a way to repay its creditors without having to be auctioned off.

At its current state, Compute North owes about $500 million to Generate Capital and about 200 other creditors. 

An industry under threat

Compute North’s bankruptcy filing is the latest proof of how tough recent times have been for block reward miners. With the bear market, these miners earn a fraction of their revenue from a year ago when every digital asset was ‘mooning.’ The ever-rising electricity prices have added to their woes, with hostile regulations and the collapse of some of the biggest firms in the industry adding insult to injury.

Compass Mining, which is one of Compute North’s partners, is among those that have been hardest hit. In July, the miner had to lay off 15% of its workforce and halve its execs’ salaries as some of its vendors lamented six-month-late payments. Its CEO stepped down shortly after.

Compute North faces a similar path, and its CEO has stepped down already. Dave Perill resigned this month, with chief operating officer Drake Harvey taking over at the top.

Some of the firm’s biggest partners have brushed off the impact that the bankruptcy filing will have on their operations, including those who signed new agreements with Compute North this year.

Compass Mining, which signed an agreement two months ago to build a 75MW facility in Texas with Compute North, claimed that “the bankruptcy filing should not disrupt business operations. We are continuing to monitor the situation and will provide further updates as they become available.”

Marathon also dismissed the filing as inconsequential to its operations.

Today, a filing related to one of our hosting providers was published. Based on the information available at this time, it is our understanding that this filing will not impact our current mining operations.

— MARA (@MarathonDH) September 22, 2022

Hive Blockchain, on its part, claimed that despite signing a letter of intent in February to work with Compute North, it had backed out of the deal a few months later.

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