The New Hampshire Business Finance Authority is preparing to issue what is believed to be the first rated bitcoin-backed bond, a significant development in the integration of cryptocurrency into traditional public finance. This bond has received a provisional Ba2 rating from Moody’s, placing it two notches below investment grade.
The bond’s structure is unique, as it is collateralized by bitcoin rather than relying on cash flows from a business. According to a press release, the bondholders will be repaid through the liquidation of bitcoin held in custody by BitGo, which will be sold if necessary to meet interest and principal payments. This structure includes common safeguards found in structured credit, such as 1.6x overcollateralization and liquidation triggers that activate if the loan-to-value ratio declines.
Moody’s rating reflects various risks associated with the transaction, including the inherent volatility of bitcoin. The agency utilized a 72% advance rate and short liquidation windows to model potential downside scenarios, emphasizing the speculative nature of this financial instrument.
Importantly, the bonds are classified as limited recourse, meaning that no public funds from the State of New Hampshire will be at risk. Moody’s clarified that “no public funds of the State of New Hampshire… may be used to pay amounts under the Rated Bonds.” This distinction is crucial as it indicates that while the deal involves a state authority, it does not carry the backing of state credit.
This bond issuance represents a notable entry point for bitcoin into the public finance sector, an area where it has seldom been seen. The Ba2 rating, while speculative-grade, also indicates that credit agencies are beginning to develop frameworks for evaluating crypto-backed financial products.
This initiative comes at a time when institutions are exploring innovative ways to utilize bitcoin beyond mere trading or treasury holdings. Recently, the Labor Department proposed a rule aimed at expanding access to digital assets in retirement portfolios, following an executive order from President Donald Trump.
New Hampshire's Business Finance Authority is set to issue the first rated bitcoin-backed bond, receiving a Ba2 rating from Moody's. This initiative marks a significant step in integrating cryptocurrency into public finance, with safeguards in place to mitigate risks associated with bitcoin's volatility.