Newmarket Capital It recently closed the first investment deal for a new battery financing loan strategy, which enables borrowers to integrate Bitcoin into long-term financing structures as collateral.
On November 7, 2024, Newmarket Capital, an institutional capital manager and registered investment advisor, completed the refinancing of a Bank Street Court apartment in Old Town, Philadelphia, Pennsylvania. The loan was collateralized by both the building and approximately 20 bitcoins.
Newmarket Capital CEO Andrew Hones is not only excited about putting his company’s new strategy into action, but also about the symbolism involved in the deal.
“It’s a building located less than half a block from the first bank in the United States,” Hones told Bitcoin Magazine. “Philadelphia has had a lot of firsts over the years, and we’re proud to contribute another one to the list.”
How does the battery financing strategy work?
Battery Finance enables Bitcoin to be used as collateral for 10% to 30% loans alongside traditional assets. To bring this new strategy to life, Newmarket Capital has teamed up with Ten 31 To create Battery financinga majority-owned subsidiary of Newmarket Capital that uses Bitcoin in financing structures.
Unlike other lending companies that allow clients to borrow against Bitcoin with the risk of liquidation if the price of Bitcoin falls below a certain threshold, Newmarket Capital removes the risk and offers loan structures without activating the market.
“As lenders, we base our position on the long-term value of bitcoin and are comfortable recognizing bitcoin as collateral without market risk,” Hohns said.
“We achieve this by integrating Bitcoin as an element of a broader collateral package alongside traditionally bankable assets. In this way, we have optimized our downside by introducing Bitcoin, an uncorrelated component – an asset that has had a strong history of appreciation over time.” – In the guarantee package.
Trades using this strategy can be structured differently. In some cases, a borrower can use Bitcoin they already hold as collateral for a loan, while in other cases, Newmarket Capital and the borrower purchase Bitcoin as part of the loan structure. The last is how to structure the loan for the Bank Street Courthouse building.
“It’s a $16.5 million building, and we offered the building owner a $12.5 million loan,” Hohns explained.
“The proceeds were to be used to pay off the existing financing, which was $9 million, to provide them with approximately $2 million in capital expenditures to make certain improvements to the property that they wanted to make,” he added.
“With the remaining $1.5 million, we purchased approximately two dozen bitcoins as part of our combined collateral package.”
(At the time of writing, the value of bitcoin has already risen 30% since purchasing it for the loan.)
Unlike traditional loans which often restrict borrowers with prepayment penalties or…
Generally, Bank Street Court financing can be repaid at any time without any penalty. To allow for this outcome, the borrower and lender cooperate to share appreciation on the upside of Bitcoin over the life of the loan.
The longer the loan repayment period, the greater the share of Bitcoin appreciation that the borrower benefits from, motivating borrowers to take a long-term view of Bitcoin.
Although the loan can be repaid at any time and the building released, the soonest Bitcoin can be wound up is four years, in keeping with Bitcoin’s four-year rhythm. The loan carries a single-digit interest rate and has a maturity of 10 years.
Bringing the value of Bitcoin forward
Honz, a Bitcoin user, realizes that other Bitcoin users have a low time preference, and that they prioritize future economic well-being over immediate gratification. However, he admits there are limits to this approach, which is why Newmarket Capital created the battery financing strategy.
“Minimum time preference is not possible for humans, because we have a limited lifespan,” he said.
“There comes a point where we want to accomplish things in our lives. We want to grow our business or start a new business or just do things that we’re all passionate about, like opening a MakerSpace or a brewery or a bookstore — whatever the case may be,” he added. “If you just hold a coin Bitcoin, you are postponing those dreams.”
“By offering this financing instrument, we can essentially act as a mechanism to shift those time preferences, to increase the appreciation of Bitcoin by providing a significant amount of financing to achieve any borrowers’ real-world goals.”
Target borrowers
Battery Finance currently focuses on working with borrowers interested in acquiring or refinancing commercial real estate.
“Right now, we are calling for interest in loans that range, generally, from $10 million to $30 million, which includes 10% to 30% of Bitcoin with 70% to 90% of traditionally bankable income-producing assets,” he explained. Hons.
“This is a tool for both asset owners who want to revalue some of the equity in their assets
Current wallet to Bitcoin It is also a tool for Bitcoin users who want to have long-term stable funding partly backed by their Bitcoin to acquire real-world assets. This way, they can generate income and achieve their goals while continuing to invest in Bitcoin.
In time, Battery Finance plans to serve a broader range of customers.
“We see broad applicability to this lending structure, including, over time, for people who are at different stages of their bitcoin savings journey,” Hohns said. “I hope that these types of products will develop into solutions that enable people to do things like finance a house or a car with their bitcoin.”