Capital of New Market It recently closed the first investment deal for its new Battery Finance lending strategy, which allows borrowers to embed bitcoins in long-term financing structures as collateral.
On November 7, 2024, Newmarket Capital, an institutional capital manager and registered investment advisor, completed a refinancing for the Bank Street Court apartment in Old City, Philadelphia, PA. The loan was secured by both the building and approximately 20 bitcoins.
Newmarket Capital CEO Andrew Hohns is excited not only about putting his company's new strategy in motion, but also about the symbolism of the deal.
“It's a building that is located less than half a block from the first bank in the United States,” Hohns told bitcoin magazine. “Philadelphia has had many firsts and innovations over the years, and we are proud to contribute another to the list.”
How the battery financing strategy works
Battery Finance allows bitcoin to be used as 10% to 30% of collateral for loans alongside traditional assets. To bring this new strategy to life, Newmarket Capital partnered with ten 31 establish Battery financinga majority owned subsidiary of Newmarket Capital that uses bitcoin in financing structures.
Unlike other lending companies that allow customers to borrow against bitcoin with a risk of liquidation in the event that the price of bitcoin falls below a certain threshold, Newmarket Capital eliminates the risk and offers loan structures without a market value trigger.
“As lenders, we are constructive about the long-term value of bitcoin and are comfortable recognizing bitcoin as risk-free collateral for market value,” Hohns said.
“We achieve this by incorporating bitcoin as a component of a broader collateral package alongside traditionally bankable assets. In this way, we have improved our disadvantage by introducing bitcoin, a non-correlated item (an asset that has had a strong history of appreciation over time) into the collateral package.”
Deals that employ this strategy can be structured differently. In some cases, a borrower may use bitcoins they already have as collateral for a loan, while in other cases, Newmarket Capital and the borrower purchase bitcoins as part of the loan structure. The latter is the way the loan for the Bank Street Court building was structured.
“It's a $16.5 million building and we offered the owner of the building a $12.5 million loan,” Hohns explained.
“The use of the proceeds was to pay off the existing financing, which was $9 million, to provide them approximately two million dollars of CapEx for certain property improvements they wanted to make,” he added.
“With the remaining $1.5 million, we purchased just under twenty bitcoins as part of our combined collateral package.”
(At the time of writing, that bitcoin had already appreciated 30% in value since it was purchased for the loan.)
Unlike traditional loans, which often force borrowers to impose prepayment penalties or an obligation to make
As a whole, Bank Street Court financing can be liquidated at any time without penalty. To enable this outcome, the borrower and lender align to share in the positive appreciation of bitcoin over the life of the loan.
The longer the loan is outstanding, the larger the borrower's share of bitcoin appreciation, which incentivizes borrowers to take a long-term view of bitcoin.
Although the loan can be repaid at any time and the building can be released, the earliest bitcoin can be liquidated is four years, in line with bitcoin's four-year pace. The loan has a single-digit interest rate and has a maturity of 10 years.
Advancing the value of bitcoin
Hohns, a Bitcoiner, understands that other Bitcoiners have a low time preference, prioritizing future economic well-being over more immediate gratification. However, he recognizes that this approach has limits, which is why Newmarket Capital created the Battery Finance strategy.
“The lowest time preference is not feasible for humans, because we have a finite lifespan,” he said.
“There comes a point where we want to achieve things with our lives. We want to grow our business or start a new business or just do the things we're all passionate about, like opening a MakerSpace, a brewery, or a bookstore, whatever the case may be. “If you are simply HODLing bitcoin, you are postponing those dreams,” he added.
“By offering this financing tool, we can essentially serve as a mechanism to transform those time preferences, to drive bitcoin appreciation by offering a significant amount of financing to achieve whatever real-world goals borrowers have.”
Target borrowers
Battery Finance is currently focused on working with borrowers who are interested in purchasing or refinancing commercial properties.
“At the moment, we are generating interest on loans that are, broadly speaking, $10 million to $30 million dollars, including 10% to 30% bitcoin with 70% to 90% assets.” that generate traditionally bankable income. ”Hohns explained.
“This is a tool for both asset owners who want to redenominate some of the capital in their
existing bitcoin wallet and is also a tool for Bitcoiners who want to obtain stable long-term financing backed in part by their bitcoin to acquire assets in the real world. “This way, they can generate income and achieve their goals while continuing to invest in bitcoins.”
Over time, Battery Finance plans to serve a broader range of customers.
“We see broad applicability of this loan structure, including, over time, to people who are in different phases of their bitcoin savings journeys,” Hohns said. “I hope these types of products become solutions that allow people to do things like finance a house or a car with their bitcoins.”
