Cipher Digital's $850 million convertible pays interest in shares as Barber Lake costs rise about $800 million
Cipher Digital priced $850 million of zero-coupon convertible notes due 2032 on October 14 at a $15.31 conversion price, 35% above its $11.34 close, with proceeds earmarked for Barber Lake. The Texas campus's budget has swollen by about $800 million, and the interest is being paid in shares.
Vincent Jiang · 3 min read
Cipher Digital, a former bitcoin miner turned builder of industrial-scale data centers for AI tenants, priced $850 million of convertible senior notes on October 14, 2026, a day after announcing them 12. The notes pay no interest, mature on November 1, 2032, and were sold privately to institutional buyers; after fees, Cipher expects about $835.1 million, or $982.5 million if a 13-day option for $150 million more is exercised 1.
Holders convert at about $15.31 a share, a 35.0% premium to the $11.34 close on October 13 1. The stock hit a 52-week low of $11.21 that day 3, down from $18.74 on September 25, when the Barber Lake lease extension was announced 2. It traded 5% lower at $10.72 on pricing day, with the selling concentrated in equity-dilutive AI data center names rather than the sector ETF, which slipped 1% 4.
The overruns behind the money
Barber Lake, Cipher's 300-megawatt campus in Colorado City, Texas, was budgeted at $2.16 billion and is now expected to cost $2.94 billion to $2.97 billion after design changes the tenant requested 5. Under the September 25 agreements with its tenant Fluidstack and a leading AI lab, Cipher absorbs the first $359.3 million of overruns, and the tenant reimburses half of anything above that as extra rent over 20 years 6. Cipher expects to carry $375 million to $400 million net 5.
In return, the lease doubled to 20 years and contracted revenue rose from $3.8 billion to more than $9 billion, including about $5.2 billion from a 10-year commitment by the AI lab, which Cipher did not name 6. First rent starts in the fourth quarter of 2026 6. Until then the burn runs: operations used $244 million of cash in the second quarter, negative in seven of the last eight quarters 7.
Cipher's operations used cash in seven of the last eight quarters
Data
| Operating cash flow | |
|---|---|
| Q3 '24 | -$0.01B |
| Q4 '24 | -$0.03B |
| Q1 '25 | -$0.05B |
| Q2 '25 | -$0.06B |
| Q3 '25 | -$0.05B |
| Q4 '25 | -$0.05B |
| Q1 '26 | $0.09B |
| Q2 '26 | -$0.24B |
Existing shareholders carry the cost
Zero percent is not free; Cipher pays the coupon in shares. About $89.7 million of the proceeds funds capped calls, contracts that soften dilution from conversion, but only up to $28.35, 150% of the close 1. The 40.7 million shares going to holders of $165.9 million of older 1.75% notes due 2030 arrive with no protection 14; at $11.34 they are worth about $462 million, nearly three times the debt they retire. Conversion at the initial rate would add about 55.5 million shares 1.
Certain dilution now, up to 106 million shares if it all converts
- Estimate
Data
| Value | |
|---|---|
| 2030 note exchange (committed) | 40.7M shares |
| 2032 notes if converted (estimate) | 55.5M shares |
| Extra $150M option if used (estimate) | 9.8M shares |
The rent check decides it
The bull case is real: two decades of contracted rent and $4.0 billion of cash at June 30 67. This is still the third raise in thirteen months, after $1.1 billion of 0% converts due 2031 and $1.73 billion of 7.125% secured notes 2. The notes settle October 16; holders can demand cash back on November 1, 2030, two years early 1. The first Barber Lake rent check, due this quarter, tells whether the new shares were worth issuing 6.
Deepdive
AI-generated from this story and its cited sources. Not investment advice.
