New market capital recently closed the first investment deal for its new Battery Finance lending strategy, which allows borrowers to include Bitcoin as collateral in long-term financing structures.
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 bitcoin.
Newmarket Capital CEO Andrew Hohns is excited not only about putting his company’s new strategy in motion, but also about the symbolism in the deal.
“It’s a building that’s 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’re proud to add 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 in addition to traditional assets. To bring this new strategy to life, Newmarket Capital partnered with Ten 31 to be determined Battery financinga majority-owned subsidiary of Newmarket Capital that uses bitcoin in financing structures.
Unlike other lenders that let customers borrow against bitcoin with the risk of liquidation in the event that the price of bitcoin falls below a certain threshold, Newmarket Capital removes the risk and offers lending structures without a mark-to-market trigger .
“As lenders, we are constructive about the long-term value of bitcoin and recognize bitcoin as collateral without mark-to-market risk,” Hohns said.
“We achieve this by including bitcoin as part of a broader collateral package alongside traditionally financeable assets. In this way, we have improved our negative side by introducing bitcoin, an uncorrelated element – an asset that has had such a strong history of appreciation over time – into the collateral package.”
Deals using this strategy can be structured differently. In some cases, a borrower can use bitcoin they already own as collateral for a loan, while in other cases Newmarket Capital and the borrower purchase bitcoin as part of the loan structure. The latter 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 proceeds was to pay down existing financing, which was $9 million, to provide them with approximately $2 million in CapEx for certain improvements to the property that they wanted to make,” he added .
“With the remaining $1.5 million dollars, 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 before the loan.)
Unlike traditional loans, where borrowers are often stuck with prepayment penalties or compensation
In its entirety, the Bank Street Court financing can be paid off at any time without penalty. To enable this outcome, the borrower and the lender align to share the appreciation of Bitcoin over the life of the loan.
The longer the loan remains outstanding, the greater the share of Bitcoin appreciation that accrues to the borrower, incentivizing borrowers to take a long-term view of Bitcoin.
While the loan can be repaid and the building released at any time, the earliest it can be phased out is four years, in line with bitcoin’s four-year cadence. The loan has a single-digit interest rate and a term of 10 years.
Highlighting the value of Bitcoin
Hohns, a Bitcoiner himself, understands that other Bitcoiners have a low time preference, prioritizing future economic well-being over more immediate gratification. However, he recognizes that there are limits to this approach and that is why Newmarket Capital has created the Battery Finance strategy.
“The lowest time preference is not feasible for humans because we have finite lives,” he said.
“There is 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 righteous HODLing the 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’s appreciation by offering a significant amount of financing to achieve whatever borrowers’ real goals are. ”
Target borrowers
Battery Finance currently focuses on working with borrowers interested in acquiring or refinancing commercial real estate.
“For now, we are inviting interest in loans generally in the range of $10 million to $30 million dollars, including 10% to 30% percent bitcoin with 70% to 90% percent traditionally financeable income-producing assets,” Hohns explained.
“This is a tool for both asset owners who want to morgenode some of the equity in their portfolio
existing portfolio in Bitcoin and it is also a tool for Bitcoiners who want to obtain stable long-term financing, partially backed by their Bitcoin, to acquire real-world assets. This way they can generate income and achieve their goals while remaining invested in bitcoin.”
In the long term, Battery Finance plans to serve a broader range of customers.
“We see broad applicability for this credit structure, including over time for people at different stages of their Bitcoin savings journey,” Hohns said. “I hope that these types of products will develop into solutions that allow people, for example, to finance a house or car with their bitcoin.”