Wall Road’s first try at a public bond sale backed by bitcoin loans has hit some turbulence after bitcoin’s sharp decline triggered compelled liquidations.
Bankers at Jefferies have spent months pitching institutional buyers on a $188 million asset-backed bond deal tied to hundreds of loans issued by crypto lender Ledn, based on Wall Road Journal reporting.
The construction is designed to package deal one-year loans made to people who publish bitcoin as collateral, with proceeds from the bond sale offering Ledn extra capital to increase new credit score.
However the transaction has been examined after bitcoin fell roughly 27% since mid-January, prompting margin calls throughout the mortgage pool. Ledn was compelled to liquidate about one-quarter of the loans supposed to again the deal, based on WSJ.
In different phrases, the bitcoin-backed credit score product confronted a stress check fairly early on when bitcoin value volatility triggered margin calls throughout the mortgage e book.
Ledn’s bonds are anticipated to pay buyers between 3 and 6 share factors above benchmark charges.
Jefferies, which has been increasing its presence in structured finance, has more and more supplied extra advanced and fewer examined asset-backed merchandise.
The financial institution has additionally pushed additional into crypto dealmaking, together with advising buying and selling platform NinjaTrade on its $1.5 billion sale to trade Kraken final yr.
Initially, Jefferies instructed buyers the Ledn bonds can be supported by $199 million in bitcoin-backed loans and $1 million in money. That blend has shifted considerably following the liquidations, with roughly $150 million of loans and $50 million of money now forming the collateral pool, the WSJ reported.
In different phrases, what was marketed as a bond supported primarily by interest-generating loans is now backed much more closely by money, displaying fragility of the construction throughout sharp drawdowns.
S&P’s bitcoin bond rankings
Regardless of the disruption, the bond deal stays scheduled to shut on Feb. 18, based on S&P World Scores, which assigned a ranking to the notes. Ledn should now redeploy liquidation proceeds into new loans to generate the curiosity revenue wanted to satisfy funds to bondholders.
The S&P rankings outlined the construction and key dangers behind Ledn Issuer Belief 2026-1. S&P mentioned the preliminary collateral pool consisted of 5,441 fixed-rate balloon loans to 2,914 debtors, with an combination principal stability of about $199.1 million as of Dec. 31, 2025.
The loans are secured by roughly 4,079 bitcoin, valued at roughly $356.9 million on the cutoff date, with a weighted-average rate of interest of 11.8% and a weighted-average loan-to-value ratio of 55.8%.
The report famous that bitcoin’s sharp decline in early February compelled Ledn to liquidate a “important share” of loans slated for the deal. S&P mentioned all liquidations had been executed under an 81.4% LTV threshold, shifting the portfolio combine towards fewer loans and more money within the funding account, whereas conserving the full collateral package deal at $200 million.
S&P’s evaluation centered on borrower default habits, restoration charges throughout liquidation, and focus danger.
The company mentioned margin-driven defaults characterize essentially the most acute stress state of affairs as a result of liquidations happen when bitcoin costs are falling, probably into skinny or risky markets the place execution slippage issues most.
As a result of Ledn underwrites loans based on bitcoin collateral moderately than borrower credit score profiles, S&P mentioned conventional client mortgage efficiency metrics are restricted.
On the ‘A’ stress degree, the company utilized a conservative 100% default assumption, with modeled stresses for the rated notes together with a 79% default fee and 68% restoration for the BBB- class A tranche.
S&P highlighted structural mitigants together with overcollateralization, early amortization triggers, a liquidity reserve funded at 5% of observe stability, and Ledn’s automated liquidation engine, which it mentioned has efficiently liquidated 7,493 loans over seven years with out principal losses.
Nonetheless, S&P flagged key weaknesses, together with bitcoin’s historic volatility, regulatory uncertainty, and a battle of curiosity tied to Ledn’s previous follow of rolling loans by capitalizing unpaid curiosity.
Ledn plans to require money curiosity funds for renewals beginning in 2027, which S&P mentioned reduces liquidity stress over time.
In keeping with the WSJ, If bitcoin’s value drops and a mortgage exceeds 70% of collateral worth, debtors should add extra bitcoin. At 80%, Ledn robotically liquidates collateral to repay the debt.
