U.S-listed bitcoin mining colocation provider Applied Digital has issued an unsecured promissory note to borrow up to $20 million with an effective annualized cost of debt of at least 25%.
Applied Digital, a major colocation provider for Marathon, said in an SEC filing on Tuesday that the loan was issued on Jan. 30, which matures in 2 years and carries an annualized interest rate of 12.5%. The details of the loan agreement provide additional insight into the lending dynamics in the bitcoin mining industry.
While there is no penalty or premium for Applied Digital to prepay the loan, it must also pay a repayment fee of 25% of the principal amount whether it prepays the loan or not. But if Applied Digital undergoes a sale, or merger or manages to raise more than $35 million from another debt instrument or equity financing, it must prepay the loan in full.
With quarterly interest payments and a one-time repayment fee, Applied Digital’s annualized cost of debt is effectively 25% if it carries the liability for two years, or 38% if it prepays the loan in full in one year.
Applied Digital plans to fund the buildout of its HPC data centers with the loan proceeds, $15 million of which was immediately available on Jan. 30, while the remaining $5 million is subject to the sole discretion of the lender, AI Bridge Funding LLC.
While there is limited information available online about the lender, Applied Digital said that affiliates of the lender are both investors in B. Riley Financial and investment management clients of B. Riley Asset Management.
Applied Digital’s chairman and CEO Wes Cummins was also the president of B. Riley Asset Management and just resigned from the role on Monday.
Meanwhile, Applied Digital terminated a $50 million term loan with B. Riley on Monday. According to its financial statement for the quarter ending November 2023, it had a debt-to-equity ratio of 209%.
Applied Digital is not the only company that is taking financial leverage. In January, Hut 8 extended its credit facility with Coinbase by another $15 million, pushing the total principal to $65 million. The interest rate was at least 8.25% as Hut 8 pledges the bitcoin on its balance sheet as collateral.