Compute North details events leading to Chapter 11 bankruptcy filing

By Sarah Lizee

Olympia, Wash., Sept. 23 – Compute North LLC’s chief financial officer and treasurer, Harold Coulby, detailed the events that led to the company’s Chapter 11 bankruptcy made Thursday in the U.S. Bankruptcy Court for the Southern District of Texas.

Coulby said a “confluence of events” has created a liquidity crisis that has severely impeded Compute North’s ability to complete the development of several new crypto-mining data facilities that the company started when the market and financial conditions were better.

In particular, cryptocurrency prices have collapsed – bitcoin prices recently hit lows that were almost 75% below its all-time highs in late 2021 – while the rates charged for the electricity required to mine bitcoin have essentially doubled over the past year, Coulby said.

The CRO also cited supply chain issues and the debtor’s working relationship with one of its primary lenders, Generate Lending, LLC, an affiliate of Generate Capital.

In February 2022, Generate agreed to lend up to $300 million in project financing to pay for project development costs at some of Compute North’s facilities.

Generate also purchased about 1% of the preferred equity in the Compute North holding company.

In July, in the absence of any payment default, Generate asserted several technical events of default under the prepetition generate facility, Coulby said.

These technical defaults formed a basis for Generate to exercise remedies to take control of material assets of Compute North, disrupting Compute North’s business operations.

Compute North rebutted many of the defaults alleged by Generate and entered into a dialogue with Generate regarding a potential forbearance.

Following an exchange of forbearance proposals, Generate elected to exercise pledged voting rights over CN Borrower, LLC, a non-debtor and the owner of the entities that own the Kearney and Wolf Hollow facilities.

Generate also took control of the bank accounts of those non-debtor entities, which at the time contained about $23.6 million.

Generate also used its voting rights to amend the limited liability company agreement of CN Borrower, install a board of managers at CN Borrower and appoint managers to that board.

As such, Compute North lost control over CN Borrower and its subsidiaries.

Coulby said Generate and the managers also executed an amendment to the prepetition generate facility that improved the terms of the loan for Generate.

None of the Generate entities are debtors in these Chapter 11 cases.

Coulby said Compute North’s loss of control over the Generate entities contributed to business disruptions leading up to the Chapter 11 filing.

As a result, Compute North lacked the liquidity needed to continue funding the development of data centers that were being built out, despite the fact that it had already invested millions of dollars in those development projects, the CRO said.

Coulby said that, although Compute North negotiated with Generate and other prospective counterparties to either sell some of its assets or obtain new financing, none of those transactions were able to be consummated within the time frame available to Compute North to effectuate an out-of-court restructuring.

“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,” Coulby said.

Compute North will fund the Chapter 11 process in the near term with available unrestricted cash, which is “extremely limited.” As such, the company intends to administer the cases on an expedited timeline.

The debtor expects to effectuate either a reorganization of its business resulting in a scaled-down organization focusing on ownership and project management of certain facilities, or a sale of Compute North’s facilities as a going concern.

The Eden Prairie, Minn.-based company operates crypto-mining data centers. The company filed bankruptcy on Sept. 22 under Chapter 11 case number 22-90275.

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