S&P says Bitcoin-backed bonds face stress check after Bitcoin crash
Wall Avenue’s first try at a bond sale backed by a Bitcoin mortgage was thrown into turmoil as a pointy decline in Bitcoin triggered a compelled liquidation.
Jefferies bankers spent months pitching institutional traders for a $188 million asset-backed debt deal tied to hundreds of loans issued by crypto lender Redon, the report mentioned. wall avenue journal Report.
The construction is designed to package deal one-year loans made to people who pledge Bitcoin as collateral, with proceeds from the sale of the bonds offering extra funding to Ledn to increase new credit score.
However the commerce has been put to the check after Bitcoin has fallen about 27% since mid-January, triggering margin calls throughout the mortgage pool. Reddon was reportedly compelled to liquidate a couple of quarter of the loans he meant to again the deal. W.S.J.
In different phrases, Bitcoin-backed credit score merchandise confronted a stress check pretty early on when Bitcoin worth fluctuations triggered margin calls throughout the mortgage e-book.
Reddon’s bonds are anticipated to pay traders 3 to six proportion factors above the benchmark rate of interest.
As Jefferies expands its presence in structured finance, it more and more provides extra advanced and less-tested asset-backed merchandise.
The financial institution can also be growing its deal with crypto buying and selling, advising buying and selling platform NinjaTrade on its $1.5 billion sale to the Kraken trade final 12 months.
Initially, Jefferies advised traders that the Ledn bonds could be backed by $199 million in Bitcoin-backed loans and $1 million in money. Its composition has modified considerably since liquidation, with roughly $150 million in loans and $50 million in money now forming the collateral pool. WSJ reported.
In different phrases, what was marketed as a bond backed primarily by interest-bearing loans is now backed by far extra cash, indicating the vulnerability of the construction within the occasion of a pointy drawdown.
S&P Bitcoin Bond Ranking
Regardless of the disruption, the bond transaction stays scheduled to shut on February 18, in keeping with S&P International Scores, which rated the bond. Redon will now should reallocate the liquidation proceeds to new loans to generate the curiosity earnings wanted to pay bondholders.
S&P Scores has outlined the construction and key dangers behind Ledn Issuer Belief 2026-1. The preliminary collateral pool consisted of 5,441 fixed-rate balloon loans to 2,914 debtors with an mixture principal quantity of roughly $199.1 million as of December 31, 2025, in keeping with S&P.
The mortgage is secured by roughly 4,079 Bitcoins, representing roughly $356.9 million as of the time limit, with a weighted common rate of interest of 11.8% and a weighted common loan-to-value ratio of 55.8%.
The report famous that Bitcoin’s sharp decline in early February compelled Reddon to liquidate a “substantial portion” of the mortgage scheduled for the deal. S&P mentioned that whereas sustaining the full collateral package deal at $200 million, all liquidations had been executed beneath the 81.4% LTV threshold and the composition of the portfolio shifted in the direction of fewer loans and extra cash within the funding account.
S&P’s evaluation targeted on borrower default habits, restoration charges throughout liquidation, and focus danger.
The company mentioned margin-driven defaults are probably the most extreme stress state of affairs as a result of liquidations happen at a time when Bitcoin costs are falling, and delays in execution can dilute or destabilize an important markets.
S&P mentioned conventional client mortgage efficiency metrics have limitations as a result of Ledn underwrites loans based on Bitcoin collateral fairly than the borrower’s credit score profile.
On the ‘A’ stress stage, the authorities utilized a conservative 100% default assumption and modeled stresses on the rated notes that included a default price of 79% and a restoration price of 68% for the BBB Class A tranche.
S&P highlighted structural mitigation measures corresponding to overcollateralization, early amortization triggers, a liquidity reserve funded by 5% of excellent notes, and Redon’s automated liquidation engine, which has efficiently liquidated 7,493 loans with out lack of principal over seven years.
Nonetheless, S&P pointed to key weaknesses, together with Bitcoin’s historic volatility, regulatory uncertainty, and conflicts of curiosity associated to Redon’s previous follow of leveraging unpaid curiosity to make rolling loans.
Redon plans to require money curiosity funds on renewal beginning in 2027, which S&P mentioned will cut back liquidity stress over time.
In line with WSJ, If the value of Bitcoin falls and the mortgage exceeds 70% of the collateral worth, the borrower might want to add extra Bitcoin. At 80%, Ledn will mechanically liquidate the collateral to repay the debt.
This text about Bitcoin-backed bonds going through stress check after Bitcoin drop first appeared in Bitcoin Journal by S&P and was written by Mika Zimmerman.
