Quarterly report pursuant to Section 13 or 15(d)

SUBSEQUENT EVENTS

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SUBSEQUENT EVENTS
6 Months Ended
Jun. 30, 2022
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 9 – SUBSEQUENT EVENTS

 

On July 5, 2022, the Company expanded certain hosting arrangements to include an additional 42 megawatts of hosting capacity at a facility near Granbury, Texas. The Company expects to have an additional 14,000 miners installed at this facility, bringing the total number of miners installed near Granbury to 26,000 or approximately 3.6 EH/s. Based on current construction schedules these miners are expected to be installed before the end of 2022.

 

On July 12, 2022, the Company entered into an agreement to secure approximately 200 megawatts of hosting capacity for the Company’s previously purchased miners, including 90 megawatts of hosting capacity in Texas and at least 110 megawatts of hosting capacity in North Dakota. The Company expects to have 66,000 miners, representing approximately 9.2 EH/s, hosted across these facilities. Based on current construction schedules, installations of the Company’s miners are expected to begin at these facilities during the fourth quarter of 2022 with all miners installed by approximately mid-year 2023. As part of this agreement, the Company has an option to increase hosting capabilities utilizing up to an additional 70 megawatts in North Dakota. The Company also secured an additional 12 megawatts of hosting capacity with a variety of other providers and expects to install approximately 4,000 miners, representing approximately 0.8 EH/s, with these hosting providers, starting in August 2022.

 

On July 15, 2022 the Federal Energy Regulatory Commission found that King Mountain Upton Wind, LLC (King Mountain) would retain its status as an exempt wholesale generator notwithstanding a proposal to share ownership of the Interconnection Facilities as tenants-in-common with a retail energy customer. This action enabled the energization of a modular data center adjacent to the Generating Facility. Approximately 69,000 of the Company’s bitcoin mining machines are located at this data center and energization enabled this equipment to come online starting on August 5, 2022.

 

On July 19, 2022, the Company sold its final shipment of equipment in accordance with its April agreement with DCRBN. The equipment was sold to DCRBN in conjunction with the development of commercial activities at the King Mountain wind farm in McCamey, TX. The Company recorded cash proceeds totalling $43.6 million and realized a pre-tax gain on the sale of such assets of $28.8 million during the month of July 2022.

 

On July 28, 2022 the Company terminated its power purchase agreements and commenced the acceleration of its exit from Hardin. As a result, the Company further accelerated the cost of a prepaid service contract ($7.2 million in cost of revenue – Energy, hosting and other) and the remaining depreciation ($13.1 million in cost of revenue – depreciation and amortization) related to the infrastructure assets at Hardin during the month of July. The data center infrastructure assets and the prepaid service contract have therefore been fully depreciated or amortized as of July 31, 2022. The bitcoin mining servers that are on site are in the process of being inventoried and removed from the facility and will be sold or redeployed to other locations in the near future.

 

 

MARATHON DIGITAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

On July 28, 2022, the Company entered into a Revolving Credit and Security Agreement (the “Agreement”) with Silvergate Bank (the “Bank”) pursuant to which Silvergate has agreed to loan the Company up to $100,000,000 on a revolving basis pursuant to the terms of the Agreement and the $100,000,000 principal amount revolving credit note issued by the Company in favor of the Bank under the Agreement (“Note”). The terms of the facility (“RLOC”) set forth in the Agreement and Note are as follows:

 

Initial Term:   Termination is on August 5, 2024.
     
Availability:   The RLOC shall be made available from time to time to the Company for periodic draws (provided no event of default then exists) from its closing date up to and including the termination date of the Agreement.
     
Origination Fee:   0.35% of the Loan Commitment to the Bank (or $350,000); due at RLOC closing (and on each anniversary if the RLOC continues for more than one year).
     
Unused Commitment Fee:   0.25% per annum of the portion of the unused Loan Commitment, payable monthly in arrears.
     
Renewal:   The RLOC may be renewed annually by agreement between the Bank and the Company, subject to (without limitation): (i) Company makes a request for renewal, in writing, no less than sixty (60) days prior to the then current maturity date, (ii) no event of default then exists, (iii) Company provides all necessary documentation to extend the RLOC, (iv) Company has paid all applicable fees related to the loan renewal, and (v) the Bank has approved such extension request according to its internal credit policies as determined by the Bank in its sole and absolute discretion.

 

Interest Rate and Payments:   Interest only to be paid monthly, with principal all due at maturity. The interest rate is defined as the higher of (i) the Floor Rate and (ii) Prime Rate plus the Applicable Margin. “Floor Rate” shall mean, as of any date of determination: (a) five and one-quarter percent (5.25%) for any days during an Interest Period the LTV Ratio is less than forty percent (40%), (b) six percent (6.00%) for any days during an Interest Period the LTV Ratio is greater than or equal to forty percent (40%) and less than fifty-five percent (55%), and (c) six and three-quarter percent (6.75%) for any day. The Applicable Margin means at any time: (a) one and one-quarter percent (1.25%) for any days during an Interest Period the LTV Ratio is less than forty (40%), (b) two percent (2.00%) for any days during an Interest Period the LTV Ratio is greater than or equal to 40% and less than fifty-five percent (55%), and (c) two and three-quarter percent (2.75%) for any days during an Interest Period the LTV Ratio is greater than or equal to fifty-five percent (55%).
     
Collateral:   The RLOC will be secured by a pledge of a sufficient amount of Company’s right, title and interest in and to bitcoin stored in a custody account for the benefit of the Bank (the “Collateral Account”). the Bank will establish a Collateral Account with a regulated custodial entity (the “Custodian”) that has been approved by the Bank. the Bank and Custodian will have a custodial agreement to perfect the security interest in the pledged Collateral Account which, among other things, allows for 1) the Bank to monitor the balance of the Collateral Account and 2) allows the Bank to have exclusive control over the Collateral Account including liquidation of the collateral in the event of Company’s default under the terms of the RLOC. the Bank may also file a UCC financing statement on the pledged collateral.
     
Minimum Advance Rate:   At origination, the Company must ensure the Collateral Account balance has sufficient bitcoin to cause a Loan to Value (the “LTV”) ratio of 65% (or less) (“Minimum Advance Rate”) on the unpaid principal balance of the RLOC. If at any time the LTV ratio exceeds 75%, the Company must bring the rate of advance to the Minimum Advance Rate.
     
Covenants:   The Company must maintain a minimum adjusted net worth of $350,000,000. The Company must maintain a minimum liquidity of $25,000,000.

 

On that same date, the Company entered into a Term Credit and Security Agreement (“Term Loan Agreement”) and Term Credit Note with the Bank with the following terms:

 

Initial Term:   Termination is on August 5, 2024.
     
Availability:   Up to $100,000,000.00 with $50,000,000.00 to be made as of the Closing Date (the “Initial Draw”), and $50,000,000.00 to be made, at Borrower’s request, on or before April 25, 2023 (the “Delayed Draw”), and subject to satisfaction of the conditions set forth in the Term Loan Agreement.
     
Fees:   An origination fee of $150,000.00 and a contingent draw fee in the amount of $250,000.00 (the, “Contingent Draw Fee”) upon the execution of the Term Loan Agreement. This Contingent Draw Fee will be refunded to the Company if it borrows the Delayed Draw by no later than November 25, 2022.

 

Interest Rate and Payments:   Interest, which shall be due on the principal amount of the loan, at the higher of 5.75% and the Prime Rate plus 1.75%, only to be paid monthly, with principal all due at maturity.
     
Collateral:   The Term Loan will be secured by a pledge of a sufficient amount of Company’s right, title and interest in and to bitcoin stored in a custody account for the benefit of the Bank (the “Collateral Account”). the Bank will establish a Collateral Account with a regulated custodial entity (the “Custodian”) that has been approved by the Bank. the Bank and Custodian will have a custodial agreement to perfect the security interest in the pledged Collateral Account which, among other things, allows for 1) the Bank to monitor the balance of the Collateral Account and 2) allows the Bank to have exclusive control over the Collateral Account including liquidation of the collateral in the event of Company’s default under the terms of the Term Loan. the Bank may also file a UCC financing statement on the pledged collateral.
     
Covenants:   The Company must maintain a minimum adjusted net worth of $350,000,000. The Company must maintain a minimum liquidity of $25,000,000.