A series of filings is providing more color on why Compute North filed for bankruptcy protection just one day after the firm began the Chapter 11 process.
A hearing took place this morning to approve orders that enable the firm to continue operations during the process. That included usual requests such as paying wages, salaries and other expenses, insurance concerns, the payment of taxes and an extension to file other financial documents. In addition to these initial orders, Compute North's counsel filed a declaration from Chief Financial Officer Harold Coulby, giving insight into the events that led the firm to file for bankruptcy in the bankruptcy court for the Southern District of Texas Houston Division.
Like other bankruptcy cases in the news, Coulby pointed to the effects of a bear market on the firm's liquidity, which affected its ability to execute planned projects.
"From the supply chain and inventory issues to the dislocation in the capital and cryptocurrency markets, Compute North has been unable to maintain sufficient liquidity to bring planned projects in development online and pay all of its obligations on a current basis," Coulby's declaration said.
That dislocation of capital includes a change in relationship with its biggest funding source, Generate Capital. Compute North builds facilities and physical infrastructure for mining firms, which requires accounting for supply chain concerns and constructing structures ahead of time. Generate agreed to lend up to $300 million to the firm in February of this year to pay the advanced costs of project developments. Within that agreement, Generate purchased 1% of preferred equity and retained the right to refuse to finance future projects and the right to appoint a director to Holdings’ board of directors.
According to Coulby, in July of this year Generate utilized terms of the contract to take control of aspects of Compute North's business that preclude Generate from being a debtor in this bankruptcy case. Just over $100 million of the credit extended by Generate capital remains outstanding, he said.
"Compute North’s loss of control over the Generate Entities contributed to business disruptions leading up to the commencement of these Chapter 11 cases," Coulby said.
The controversy with Generate left Compute North unable to continue funding in-progress data centers, some of which the firm had already deployed millions towards. Compute North sought other financing by offering to sell certain assets, among other funding solutions, including advanced negotiations with Generate and other parties. "None of these sale or financing transactions were able to be consummated within the time frame available to Compute North to effectuate an out-of-court restructuring," said Coulby.
That, with the rising energy costs, left the firm with no option but to enter Chapter 11, according to Coulby.
The bankruptcy proceedings will be funded by the firm's unrestricted cash, "which is extremely limited," according to Coulby. The firm received an extension to file certain financial statements today.
Over the Chapter 11 process, Coulby said the firm plans to enter a sale process to market and sell the its assets.
"Compute North expects to effectuate either a reorganization of its business resulting in a scaled-down organization focusing on ownership and project management of certain facilities (as defined below) or a sale of Compute North’s facilities as a going concern," said Coulby's declaration.
Motions concerning the filing of a list of creditors and the operation of the firm's cash management system will be further discussed at a continued hearing on Sept. 26 at 4 p.m. Additional hearings are slated for Oct. 11 at 9 a.m. and Oct. 24 at 1:30 p.m. in the Houston court.
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