The New Hampshire Business Finance Authority is preparing to issue what is believed to be the first-rated bitcoin-backed bond, representing a significant move towards the integration of cryptocurrency in traditional public finance. This innovative financial instrument has received a provisional Ba2 rating from Moody’s Ratings, positioning it two notches below investment grade.
According to a press release, the bonds will be issued through the Business Finance Authority of New Hampshire and will be collateralized by bitcoin, currently valued at approximately $68,155.02. Moody’s noted that the bonds will be secured by a loan that is contingent on the value of Bitcoin, diverging from standard bonds that typically rely on cash flow generated from a business.
In this structure, bondholders will be repaid through the liquidation of Bitcoins held in custody by BitGo, a digital asset security company. This means that the bitcoins can be sold as needed to satisfy interest and principal payments to bondholders. The bond deal incorporates commonly used safeguards found in structured finance, such as a 1.6 times overcollateralization and specific conditions that trigger liquidation should the loan-to-value ratio fall below a certain threshold.
Moody’s has indicated that its rating reflects the potential risks associated with the collateral, the structure of the transaction, and operational aspects, particularly highlighting the volatility inherent in Bitcoin. To model potential downside scenarios, the agency assumed a 72% advance rate along with short liquidation windows.
Crucially, these bonds are described as limited recourse, meaning that taxpayer funds in New Hampshire won’t be exposed to risk from this investment. Moody’s has clarified that “no public funds of the State of New Hampshire… may be used to pay amounts under the Rated Bonds.” This distinction underlines that, despite being issued by a state authority, the bonds do not possess any direct state credit backing. Instead, they resemble conduit or project finance, where the authority serves merely as a facilitator.
The issuance of these bonds places bitcoin into a relatively new niche within the financial system—rated debt that is made available through public mechanisms. Although the Ba2 rating categorizes these bonds within the speculative-grade realm, it also indicates that credit rating agencies are beginning to formulate methodologies for evaluating cryptocurrency-backed financial products.
This development occurs amid a broader trend where institutions are exploring innovative uses of Bitcoin beyond simple trading or holding in treasury accounts. Notably, the Labor Department has recently proposed a rule inspired by an executive order from Donald Trump, aiming to expand access to digital assets in retirement portfolios, further signalling the evolving landscape of cryptocurrency in mainstream finance.
