My point 1 has been addressed - my point 2 (secured only against the assets actually purchased with raised capital) may just be a case of talking at cross-purposes.
You gave the example of hire purchase agreements and secured loans. My point was that your liability for the debt in those cases doesn't extend just to the value of whatever you borrowed the cash for. If you take out a loan on a car, you don't get to limit repayments only to the value of the car.
From your response it seems you agree - and accept that Ciphermines is liable for repaying the bonds regardless of what happens with specific hardware purchased with the capital raised. Which raises the question of what "secured against" means in the context used.
With personal loans the only way out of repayment (other than through negotiation) is bankruptcy. With a company loan the equivalent is insolvency - hence my point that in practical terms the bond is secured against ALL of ciphermine's assets: if it isn't then it's not the company issuing the paper. And in the event Ciphermine closed bonds would have to be repaid before shareholders received anything - debt is always paid before equity in liquidation.
So long as you agree with those principles I don't really care if you want to claim it's somehow specifically secured against unspecified assets that will depreciate without principal being paid down (which would be the case in genuinely secured loans - the capital gets repaid as fast or faster than the backing assets lose value).
The only other point would be that at the time you issue the bonds you should disclose any debt held by Ciphermine which has seniority over the bonds and commit not to taking on new debt unless it is junior.
Thanks for clarifying and I see what you are getting at now.
Yes, the bond would be secured against all the assets except that in a liquidation scenario our shareholder contract states that shareholders have the rights to funds released from the sale of CipherMine's hardware in a winding up.
My intention is to clearly delineate the two; in that situation I see the following as the process (in order of seniority):
- All available means are used to repay CIPHERMINE.B1 bond holders from operating revenues and cash reserves. Assuming this proves inadequate:
- The assets purchased with the bond funds are sold and proceeds distributed to the bondholders.
- The remaining assets (original ones I put in, ones bought with CIPHERMINE shareholder funds and the ones I've "donated") are sold and the proceeds distributed to the CIPHERMINE shareholders.
We could make it so that 2 and 3 require a successful motion of the respective parties, but exclude CIPHERMINE shareholders' ability to veto the bondholders in that scenario?
The issue with giving the bondholders seniority over everything is that it would (I think) require a change to the shareholder contract, and to be honest I can't see that motion passing unless I forced it through myself (which would piss off a lot of people).
I would sincerely value your thoughts on the above and thank you ever-so-much for your considered input thus far. It is very appreciated!
Kate.
You may be surprised at what shareholders will pass - if the benefits of it are explained clearly.
I faced a similar situation with LTC-ATF - I wanted to raise further capital by issuing bonds rather than selling more units. LTC-ATF is fund rather than a mining operation - so the assets are securities and crypto-currency rather than mining hardware and fiat currency. But otherwise the situation is very similar (the bonds LTC-ATF sold have a face value in BTC despite the fund operating in LTC).
I raised a motion to allow sale of the bonds. I believe a motion has to be raised as significant debt/liability is being incurred when bonds are sold - and even without a specific clause in the contract saying so debts have to be paid before anything is paid to equity holders. I made it explicit in the motion that bondholders would be shielded from trading loss (though there is an exception if an exchange we operate on defaults) and the bond contracts are explicit in bondholders senior claim on assets. That seniority was also discussed before and after the motion.
The motion passed with 84.3% Yes votes and no No votes/abstains (it was only up for a day - back then there was no 7 day minimum for contract changes as there is now). Whilst I was (and still am) the majority holder the Yes votes included a majority of all shares NOT owned by me - i.e. it would have passed if I'd abstained.
So long as you can convince your investors that the capital raised will generate more profit than it costs to service the bonds (and that the risk of significant loss on that capital is low) you should have no problem obtaining approval from them - as they end up making more profit themselves if the bonds are allowed than if they aren't. The key is just explaining the benefits to them.
The idea of a bond with a BTC face value but interest tied to USD is an interesting one (now you've sorted the issue with multiple batches). With no possible loss of face value from exchange-rate movement I can see it having uses for investors that a pure USD-denominated or pure BTC-denominated bond wouldn't - as it allows for hedging income whilst maintaining capital as being pure BTC-denominated.
