Newmarket Capital recently closed the first investment deal for its new battery finance loan strategy, which enables 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 Bank Street Court Apartments in Old City, Philadelphia, PA. The loan was secured by both the building and about 20 bitcoins.
NewMarket Capital CEO Andrew Hones is excited not only to set his company’s new strategy in motion but also the symbolism in the deal.
“It’s a building that’s located less than half a block away from the First Bank of the United States,” Hones told Bitcoin Magazine. “There have been many firsts and innovations in Philadelphia over the years, and we are proud to contribute another to the list.”
How the battery financing strategy works
Battery Finance enables Bitcoin to be used as 10% to 30% of collateral for loans alongside conventional assets. To bring this new strategy to life, Newmarket Capital partnered Ten 31 to 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 in the event that the Bitcoin price falls below a certain threshold, NewMarket Capital removes the risk and offers a loan structure with no mark-to-market trigger. does
“As lenders, we are constructive on the long-term value of bitcoin and are comfortable recognizing bitcoin as collateral without the mark-to-market risk,” Hones said.
“We achieve this by including bitcoin as part of a broader asset package alongside traditional financial assets. In this way, we have corrected our downside through the introduction of bitcoin, an uncorrelated element. – a property that has such a strong history of appreciation over time – in the property package.”
Deals that implement this strategy may turn out differently. In some cases, a borrower can use bitcoins they already hold 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 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,” Hones explained.
“The proceeds were to be used to pay off the existing financing, which was $9 million, to provide them with about $2 million in CapEx for some of the property improvements they wanted to make,” he added.
“With the remaining $1.5 million dollars, we only purchased 20 bitcoins as part of our combined asset package.”
(At the time of writing, that bitcoin had already appreciated 30% in value because it was bought for debt.)
Unlike conventional loans that often require borrowers to pay prepayment penalties or make-
Overall, Bank Street Court financing can be repaid at any time without penalty. To allow for this outcome, borrowers and lenders align to share the appreciation on top of Bitcoin over the life of the loan.
The longer the loan is outstanding, the greater the share of Bitcoin appreciation that accrues to the borrower, encouraging borrowers to take a long-term view on Bitcoin.
Although the loan can be repaid and the building released at any time, according to Bitcoin’s four-year cycle, the earliest Bitcoin can be given is four years. The loan carries an interest rate of one digit and has a tenor of 10 years.
Bringing forth the value of Bitcoin
Hones, a bitcoiner himself, understands that other bitcoiners have a lower time preference, that they prioritize future economic well-being over more immediate gratification. However, he recognizes that this approach has limitations, which is why NewMarket Capital has created a battery financing strategy.
“The shortest time preference is not possible for humans, because we have a finite life,” he said.
“There is a point where we want to get things done 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 or a brewery or a bookstore — whatever the case may be. If you are just hodling Bitcoin, you are defying those dreams,” he added.
“By offering this financing tool, we can essentially act as a mechanism to change the priorities of those times, whatever led to Bitcoin’s appreciation by offering financing to meet real-world goals.” can go.”
Target borrowers
Battery Finance is currently focused on working with borrowers who are interested in acquiring or refinancing commercial properties.
“Right now, we’re inviting interest around the loans, which are typically $10 million to $30 million dollars, with 10% to 30% in bitcoin versus 70% to 90% traditionally. Financial income-producing assets,” Hones explained.
“It is a tool for both property owners who want to re-designate some of the equity between them.
Current portfolio in Bitcoin and is also a tool for Bitcoiners who want to have stable long-term financing backed by their Bitcoin to acquire assets in the real world. Thus, they can generate income and meet their goals while investing in Bitcoin.
Over time, Battery Finance plans to serve a wider range of customers.
“We see broad applicability for this lending structure, over time, for people who are at different stages of their bitcoin savings journeys,” Hones said. “I hope these types of products will evolve into solutions that enable people to do things like finance a house or an automobile with their Bitcoin.”
