Capital of Newmarket recently closed the first investment deal for its new Battery Finance lending strategy, which allows lenders to include bitcoin 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 collateralized by both the property and about 20 bitcoins.
The CEO of Newmarket Capital, Andrew Hohns, is excited not only about setting his company's new strategy but also the symbolism of the deal.
“It's a building that's less than half a block away from the first bank in the United States,” Hohns told Bitcoin Magazine. “Philadelphia has seen a lot of new things over the years, and we're proud to add another one to the list.”
How Battery Finance Strategy Works
Battery Finance enables bitcoin to be used as 10% to 30% of the collateral for loans alongside traditional assets. To bring this new strategy to life, Newmarket Capital partnered with him Ten 31 to establish Battery Financea 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 level, Newmarket Capital removes the risk and offers loan structures without a token to market.
“As lenders, we are supportive of bitcoin's long-term value and comfortable recognizing bitcoin as a mark-to-market risk-free collateral,” Hohns said.
“We achieve this by including bitcoin as part of a broader collateral portfolio alongside traditionally funded assets. In this way, we have improved our leverage by including bitcoin, an unrelated element – an asset that has had such a strong history of appreciation over time – in the collateral package. “
Contracts using this strategy can be structured differently. In some cases, a lender can use bitcoin they already hold as collateral for a loan, and, in other cases, Newmarket Capital and the borrower buy bitcoin as part of the loan structure. The last is how the loan for the Bank Street Court building was structured.
“It's a $16.5 million building, and we offered the building owner a $12.5 million loan,” Hohns explained.
“The use of the money was to pay the existing funding, which was $9 million, to give them about two million dollars of CapEx for specific improvements to the building that they wanted to do,” said e.
“With the remaining $1.5 million, we bought just shy of twenty bitcoins as part of our collateral portfolio.”
(At the time of this writing, that bitcoin had already gained 30% in value since it was bought for the loan.)
Unlike traditional loans that often lock borrowers in with prepayment penalties or defaults
In general, Bank Street Court financing can be paid off at any time without penalty. To allow this result, the lender and the borrower agree to share the upside from the bitcoin over the life of the loan.
The longer the loan is outstanding, the greater the share of bitcoin's value is exposed to the borrower, encouraging lenders to take a long-term view of the bitcoin.
Although the loan can be repaid at any time and the property released, the earliest bitcoin can expire is four years, according to the four-year rhythm bitcoin. The loan has a single-digit interest rate and lasts for 10 years.
Advancing the value of Bitcoin
Hohns, a Bitcoiner himself, understands that other Bitcoiners have a low time preference, 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 Finance strategy.
“The minimum time option is not possible for humans, because we have finite lives,” he said.
“There is a place where we want to achieve things in life. 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 or a brewery or a bookstore – whatever happens. If you are straight HODLing the Bitcoin, you're canceling those dreams,” he said.
“By offering this financing tool, we can basically be a way to change those time preferences, to advance the value of bitcoin by offering a lot of financing to achieve the real goals of at borrowers in the world to achieve. “
Target borrowers
Battery Finance is currently focused on working with lenders who are interested in acquiring or refinancing commercial real estate.
“At the moment, we invite interest around loans that are, on average, between $10 million and $30 million dollars, which includes 10% to 30% percent bitcoin with 70% to 90% percent income assets that can be financed traditionally,” explained Hohns.
“This is a tool for all asset owners who want to redeploy some of their equity
an existing portfolio into bitcoin and is also a tool for Bitcoiners who want to get stable long-term funding backed in part by their bitcoin to acquire assets in the real world. This way, they can generate income and achieve their goals while still investing in bitcoin.”
In time, Battery Finance plans to serve a wider range of customers.
“We see broad applicability for this lending structure, including, over time, to people who are at different stages of their Bitcoin savings journey,” said Hohns. “I hope these types of products develop into solutions that allow people to do things like finance a house or a car with their bitcoin.”
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