Marathon Digital prepares Bitcoin purchase for $250 million

The listed Bitcoin mining company Marathon Digital Holdings (MARA) announced today that it will issue convertible bonds worth the equivalent of 250 million US dollars. The public company plans to use the capital to increase its own Bitcoin reserve.

MARA intends to use the net proceeds from the sale of the notes to acquire additional bitcoin and for general corporate purposes, which may include working capital, strategic acquisitions, expansion of existing assets, and repayment of debt and other outstanding obligations.
_{From the press release}

At the end of July, MARA announced that it had purchased 100 million US dollars worth of Bitcoin, increasing its holdings to over 20,000 BTC - Blocktrainer.de reported. With the additional 250 million US dollars, the mining company could acquire just over 4,000 more units at the current BTC exchange rate. Added to this are the Bitcoin that the mining company can acquire in the course of its operations. The public limited company also intends to hold these.

When MARA announced its purchase for 100 million US dollars a few weeks ago, Michael Saylor also had his say. The founder of the Bitcoin-based software company humorously asked Fred Thiel, CEO of Marathon Digital, whether a company called Marathon shouldn't have at least 26.2 thousand Bitcoin. He alluded to the distance of a marathon - measured in miles.

Thiel replied that it was something to think about. In the context of the recent announcement of the upcoming Bitcoin purchase - financed by the issue of convertible bonds - the MARA CEO publicly addressed Michael Saylor in return.

The CEOs and executive directors of billion-dollar companies now seem to be competing to see who can buy the most Bitcoin with their company.

Marathon Digital plans to privately sell USD 250 million worth of convertible notes to a group of institutional investors. The notes will mature on September 1, 2031, and when the convertible notes reach maturity, the lenders may exchange the securities for cash and/or company stock.

Convertible bonds allow listed companies to raise debt capital in order to repay it by issuing new shares in the future. Provided that Bitcoin and MARA's shares perform positively, this can be a lucrative business for lenders, as they can benefit from the success of Bitcoin or a company that relies on Bitcoin at a lower risk. The "downside" of convertible bonds is limited, as - provided the company remains solvent - only the loan amount including interest can be recovered in the event of poor performance.

In this case, the exact conditions of the capital procurement method, such as the interest paid out every six months, depend on market conditions. The company is also giving the initial purchasers the opportunity to acquire additional convertible bonds for a further USD 37.5 million within 13 days of the initial issue. If demand permits, MARA could raise a total of 287.5 million US dollars.

It will be interesting to see whether potential investors have sufficient confidence in the company and whether or on what terms MARA succeeds in raising the 250 or 287.5 million US dollars. If things go well, there should be around 280 million US dollars available for Bitcoin purchases - minus other costs incurred as a result of the bond issue.

In mid-June, the "first mover" MicroStrategy managed to raise 786 million US dollars for Bitcoin purchases by issuing convertible bonds - at an interest rate of 2.25 percent. In addition to MicroStrategy and MARA, there are already other US stock corporations that have implemented a Bitcoin strategy, including Semler Scientific.

If in future more and more listed companies opt for Bitcoin and use the capital markets to make leveraged investments in the asset, the resulting buying demand should be reflected positively in the Bitcoin price in the medium and long term.

One day later, MARA finally announced that the bonds were oversubscribed and that it had increased the call option from 37.5 to 50 million US dollars. The interest rate is 2.125% and thus - as is usual for convertible bonds due to the exchange option for shares - below the currently prevailing market interest rate.

Institutional investors seem to love the option of being able to profit indirectly from Bitcoin's success with limited risk but virtually unlimited upside. At MicroStrategy, the market also pounced on the convertible bonds and took full advantage of the opportunity to acquire further bonds.