Trinity Capital Inc. Exits Its Equity Position in Core Scientific

Rhea-AI Summary

Trinity Capital (Nasdaq: TRIN) announced the completion of its liquidation of Core Scientific (CORZ) shares. These shares were received to satisfy a $28.3 million claim from Core's Chapter 11 bankruptcy, following a $30 million equipment financing provided in 2021. The liquidation of 5,640,373 shares at an average price of $5.13 per share generated $29 million in total proceeds. Including loan interest payments, Trinity achieved an internal rate of return of 17.7% on its initial investment.

Positive

• Liquidation of Core Scientific shares resulted in $29 million in proceeds.
• Internal rate of return on the initial investment was 17.7%.
• Successful exit strategy following Core Scientific's Chapter 11 bankruptcy.
• Achieved financial return despite Core's bankruptcy situation.

Negative

• The $30 million equipment financing to Core resulted in a $28.3 million bankruptcy claim, indicating a partial loss.
• The average share price of $5.13 may suggest lower-than-expected market valuation.

Insights

Financial Analyst

Trinity Capital Inc.'s exit from its equity position in Core Scientific offers a noteworthy event for investors to consider. The fact that Trinity liquidated its shares at an internal rate of return (IRR) of 17.7% is impressive, particularly given the context of Core Scientific's Chapter 11 bankruptcy.

The IRR of 17.7% suggests that Trinity Capital managed to extract value despite Core Scientific's financial distress, which speaks to the company's adept risk management and strategic planning. In bankruptcy scenarios, it's common for creditors to recover less than the full value of their claims or even face total losses. However, Trinity's return on investment reflects effective decision-making, from the initial financing to the choice to accept equity in lieu of cash.

The total proceeds of $29.0 million from selling 5,640,373 shares at a weighted average price of $5.13 per share contrasts interestingly with the original $30 million equipment financing. While the sale resulted in slightly lower cash proceeds than the initial loan amount, the inclusion of loan interest payments brought the overall return to a favorable level. This nuanced outcome highlights the importance of considering total return metrics, not just initial principal recovery.

One thing retail investors should note is the market conditions impact on sale prices. The average price per share at $5.13 might be influenced by market sentiment towards Core Scientific post-bankruptcy. Investors should be cautious and understand that such outcomes aren't guaranteed and are highly situational.

Bankruptcy Legal Expert

From a legal perspective, Trinity Capital Inc.'s decision to accept equity in satisfaction of its $28.3 million claim during Core Scientific's Chapter 11 bankruptcy is a strategic maneuver that underscores the complex interplay between creditor rights and asset recovery in bankruptcy proceedings.

Chapter 11 bankruptcy typically involves the reorganization of a debtor's obligations rather than outright liquidation. For Trinity to come out with a 17.7% return indicates not only a favorable outcome but also the effectiveness of their legal strategy in navigating bankruptcy negotiations. Creditors often face significant losses, yet Trinity's proactive approach allowed them to align their recovery plan with Core Scientific's reorganization efforts.

This scenario provides a learning point for retail investors about the potential for restructured equity to yield positive outcomes. However, one must also consider the inherent risks and the necessity of thorough legal and financial due diligence. The ability to negotiate favorable terms in bankruptcy requires expertise and often, a level of influence that individual investors may not possess.

Liquidation of shares results in a return of 17.7% on the initial investment

PHOENIX, June 5, 2024 /PRNewswire/ -- Trinity Capital Inc. (Nasdaq: TRIN) ("Trinity" or the "Company"), a leading provider of diversified financial solutions to growth-stage companies, announced today that as of June 4, 2024, it has completed the liquidation of the shares of common stock of Core Scientific (CORZ) ("Core") that it received in satisfaction of its claim in Core's Chapter 11 bankruptcy.

Trinity provided $30 million in equipment financing to Core in 2021. Core entered Chapter 11 bankruptcy in December 2022 and exited bankruptcy in January 2024. Trinity was granted a $28.3 million claim in the bankruptcy, and elected to receive shares of Core's common stock in satisfaction of that claim. The 5,640,373 shares received were sold at a weighted average price per share of $5.13, resulting in total proceeds of $29.0 million. After the sale of the common stock, the internal rate of return on the initial investment was 17.7%, including loan interest payments received.

About Trinity Capital Inc.

Trinity (Nasdaq: TRIN), an internally managed business development company, is a leading provider of diversified financial solutions to growth-stage companies with institutional equity investors. Trinity's investment objective is to generate current income and, to a lesser extent, capital appreciation through investments, including term loans, equipment financings and equity-related investments. Trinity believes it is one of only a select group of specialty lenders that has the depth of knowledge, experience, and track record in lending to growth-stage companies. For more information, please visit the Company's website at www.trinitycap.com.

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SOURCE Trinity Capital Inc.

FAQ

What is the outcome of Trinity Capital's liquidation of Core Scientific shares?

Trinity Capital's liquidation of Core Scientific shares resulted in $29 million in proceeds and a 17.7% internal rate of return.

When did Trinity Capital complete the liquidation of Core Scientific shares?

Trinity Capital completed the liquidation on June 4, 2024.

What was the initial investment provided by Trinity Capital to Core Scientific?

Trinity Capital provided $30 million in equipment financing to Core Scientific in 2021.

How many Core Scientific shares did Trinity Capital sell?

Trinity Capital sold 5,640,373 shares of Core Scientific.

What was the weighted average price per share for the Core Scientific shares sold by Trinity Capital?

The weighted average price per share was $5.13.

What internal rate of return did Trinity Capital achieve from the liquidation?

Trinity Capital achieved a 17.7% internal rate of return from its initial investment.