{"id":50393,"date":"2026-02-10T16:35:35","date_gmt":"2026-02-10T21:35:35","guid":{"rendered":"https:\/\/bitcoinmagazine.com\/?p=50393"},"modified":"2026-02-10T16:35:42","modified_gmt":"2026-02-10T21:35:42","slug":"bitcoin-backed-bonds-facing-stress-test","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/news\/bitcoin-backed-bonds-facing-stress-test","title":{"rendered":"Bitcoin-Backed Bonds Facing Stress Test After Bitcoin Selloff, S&P Says"},"content":{"rendered":"
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Wall Street\u2019s first attempt at a public bond sale backed by bitcoin loans has hit some turbulence after bitcoin\u2019s sharp decline triggered forced liquidations.<\/p>\n\n\n\n

Bankers at Jefferies have spent months pitching institutional investors on a $188 million asset-backed bond deal tied to thousands of loans issued by crypto lender Ledn, according to Wall Street Journal <\/em>reporting<\/a>. <\/p>\n\n\n\n

The structure is designed to package one-year loans made to individuals who post bitcoin as collateral, with proceeds from the bond sale providing Ledn<\/a> additional capital to extend new credit.<\/p>\n\n\n\n

But the transaction has been tested after bitcoin fell roughly<\/a> 27% since mid-January, prompting margin calls across the loan pool. Ledn was forced to liquidate about one-quarter of the loans intended to back the deal, according to WSJ.<\/em><\/p>\n\n\n\n

In other words, the bitcoin-backed credit product faced a stress test pretty early on when bitcoin price volatility triggered margin calls across the loan book.<\/p>\n\n\n\n

Ledn\u2019s bonds are expected<\/a> to pay investors between 3 and 6 percentage points above benchmark rates.<\/p>\n\n\n\n

Jefferies, which has been expanding its presence in structured finance, has increasingly offered more complex and less tested asset-backed products. <\/p>\n\n\n\n

The bank has also pushed further into crypto dealmaking, including advising trading platform NinjaTrade on its $1.5 billion sale<\/a> to exchange Kraken last year.<\/p>\n\n\n\n

Originally, Jefferies told investors the Ledn bonds would be supported by $199 million in bitcoin-backed loans and $1 million in cash. That mix has shifted significantly following the liquidations, with roughly $150 million of loans and $50 million of cash now forming the collateral pool, the WSJ <\/em>reported.<\/em><\/p>\n\n\n\n

In other words, what was marketed as a bond supported primarily by interest-generating loans is now backed far more heavily by cash, showing fragility of the structure during sharp drawdowns.<\/p>\n\n\n\n

S&P\u2019s bitcoin bond ratings<\/h2>\n\n\n\n

Despite the disruption, the bond deal remains scheduled to close on Feb. 18, according to S&P Global Ratings, which assigned a rating to the notes. Ledn must now redeploy liquidation proceeds into new loans to generate the interest income needed to meet payments to bondholders.<\/p>\n\n\n\n

The S&P ratings outlined the structure and key risks behind Ledn Issuer Trust 2026-1. S&P said the initial collateral pool consisted of 5,441 fixed-rate balloon loans to 2,914 borrowers, with an aggregate principal balance of about $199.1 million as of Dec. 31, 2025. <\/p>\n\n\n\n

The loans are secured by roughly 4,079 bitcoin, valued at approximately $356.9 million at the cutoff date, with a weighted-average interest rate of 11.8% and a weighted-average loan-to-value ratio of 55.8%.<\/p>\n\n\n\n

The report noted that bitcoin\u2019s sharp decline in early February forced Ledn to liquidate a \u201csignificant share\u201d of loans slated for the deal. S&P said all liquidations were executed below an 81.4% LTV threshold, shifting the portfolio mix toward fewer loans and more cash in the funding account, while keeping the total collateral package at $200 million.<\/p>\n\n\n\n

S&P\u2019s analysis focused on borrower default behavior, recovery rates during liquidation, and concentration risk. <\/p>\n\n\n\n

The agency said margin-driven defaults represent the most acute stress scenario because liquidations occur when bitcoin prices are falling, potentially into thin or volatile markets where execution slippage matters most.<\/p>\n\n\n\n

Because Ledn underwrites loans primarily based on bitcoin collateral rather than borrower credit profiles, S&P said traditional consumer loan performance metrics are limited. <\/p>\n\n\n\n

At the \u2018A\u2019 stress level, the agency applied a conservative 100% default assumption, with modeled stresses for the rated notes including a 79% default rate and 68% recovery for the BBB- class A tranche.<\/p>\n\n\n\n

S&P highlighted structural mitigants including overcollateralization, early amortization triggers, a liquidity reserve funded at 5% of note balance, and Ledn\u2019s automated liquidation engine, which it said has successfully liquidated 7,493 loans over seven years without principal losses.<\/p>\n\n\n\n

Still, S&P flagged key weaknesses, including bitcoin\u2019s historic volatility, regulatory uncertainty, and a conflict of interest tied to Ledn\u2019s past practice of rolling loans by capitalizing unpaid interest.<\/p>\n\n\n\n

Ledn plans to require cash interest payments for renewals starting in 2027, which S&P said reduces liquidity stress over time.<\/p>\n\n\n\n

According to the WSJ, <\/em>If bitcoin\u2019s price drops and a loan exceeds 70% of collateral value, borrowers must add more bitcoin. At 80%, Ledn automatically liquidates collateral to repay the debt.<\/p>\n","protected":false},"excerpt":{"rendered":"

Wall Street\u2019s first public bitcoin-backed bond, issued by Ledn and rated by S&P, is facing stress after a 27% bitcoin drop forced liquidations. <\/p>\n","protected":false},"author":3817,"featured_media":50394,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4378],"tags":[6173,5451,364,6172],"class_list":{"0":"post-50393","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news","8":"tag-bitcoin-backed-credit","9":"tag-bitcoin-backed-loans","10":"tag-ledn","11":"tag-sp"},"author_data":{"id":3817,"name":"Micah Zimmerman","nicename":"micahzimmerman","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2025\/11\/Micah_Zimmerman_Author_Image.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2026\/02\/Bitcoin-Backed-Bonds-Facing-Stress-Test-After-Bitcoin-Selloff-SP-Says.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/50393","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/3817"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=50393"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/50393\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/50394"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=50393"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=50393"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=50393"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}