Ledn's unprecedented bet on debt

#Ledn , a platform specialized in loans secured by cryptocurrencies, has just opened a new chapter for digital finance by raising 188 million dollars through a bond issuance backed by loans #bitcoin ( $BTC ). This operation, carried out this Wednesday according to data from the report dated February 9, marks Bitcoin's first foray into the traditional asset-backed securities (ABS) sector, these debt securities backed by a set of underlying assets. The transaction was structured in two distinct tranches, one of which received an "investment grade" rating, a sign of unprecedented institutional recognition for a product so exposed to crypto volatility.

The entire set of bonds is backed by more than 5,400 consumer loans issued by Ledn, each itself backed by Bitcoin deposited by borrowers as collateral.

A Bitcoin-indexed bond rated investment grade

The structure of the operation relies on two tranches of bonds, with a particular interest in the one that received a BBB- rating from S&P Global. This "investment grade" rating distinguishes Ledn as a pioneer in integrating Bitcoin into traditional debt products, which have so far been reserved for more traditional assets such as mortgages or auto loans. The spread on this tranche has been set at 335 basis points above the reference rate, reflecting both the appetite and the precautions taken by investors in light of crypto risk.

The weighted average interest rate of the 5,400 underlying loans reaches precisely 11.8% according to the documents submitted to S&P Global.

The majority of the bonds thus benefit from a rating that allows them to attract a wider institutional audience.

Under the hood: 5,400 individual loans and automation of liquidations

The underlying mechanism relies on a pool of more than 5,400 consumer loans granted by Ledn, all backed by Bitcoin deposits. Borrowers deposit their bitcoins as collateral and receive a loan denominated in fiat currency in return. In case of default or if the value of Bitcoin drops too sharply, an automatic liquidation occurs: the collateral is sold to repay the principal loaned. This algorithmic system aims to protect investors from the extreme volatility of the crypto market.

Last February, during a sharp drop in the Bitcoin price – down to -50% in four months to reach 60,000 dollars – Ledn had to liquidate a significant portion of the loans intended to fund this bond operation. All these liquidations were carried out under a maximum loan-to-value (LTV) ratio of 81.4%, which mechanically limits the risk for bondholders.

A high average rate and volatile context

The weighted average interest rate on all underlying loans reaches 11.8%, well above the standards observed in traditional ABS backed by non-crypto assets. This level reflects the perceived risk but also the specific demand in this emerging segment where clients are willing to pay a premium for access to liquidity without selling their bitcoins.

This launch comes at a time when the crypto market is going through a turbulent period: American ETFs are recording net outflows on bitcoin and ether, while $SOL #solana attracts more institutional investors. Operationally, Jefferies Financial Group Inc., the sole structuring agent and bookrunner for the operation, orchestrates the placement with informed investors.

Bitcoinmagazine.com reports that S&P Global Ratings has recognized the sophistication of the algorithmic liquidation mechanism put in place by Ledn to secure repayments in the event of massive defaults or rapid market declines.

Why it matters

The successful issuance of these Bitcoin-backed bonds opens a new avenue for the securitization of digital assets while raising questions about the challenges posed by their extreme volatility. With an amount raised of 188 million dollars and a BBB- rating, Ledn establishes a concrete bridge between decentralized finance and traditional institutional markets. The market will now observe whether this model withstands the regular shocks of the crypto sector and whether other players will engage in this structured path.

What matters

  • Ledn raised 188 million dollars through the first issuance of bonds backed by loans secured by Bitcoin.

  • The majority of the bonds have received a BBB- ("investment grade") rating from S&P Global, with a spread of 335 basis points.

  • The bonds are backed by more than 5,400 consumer loans, with a weighted average interest rate of 11.8%.

Upcoming risk factors

If the price of bitcoin falls again as it did in February, when Ledn had to liquidate a significant portion of the loans below an LTV threshold of 81.4%, new automated liquidations could be triggered immediately according to the planned structure, which remains uncertain depending on the current market volatility.