Wall Street’s first attempt to sell public bonds backed by bitcoin loans ran into chaos after bitcoin’s sharp decline led to a forced liquidation.
Bankers at Jefferies spent months pitching institutional investors to a $188 million asset-backed bond deal tied to thousands of bonds issued by crypto lender Ledn, according to a report. The Wall Street Journal reporting.
The facility is designed to combine a one-year loan to people who send bitcoin as collateral, along with proceeds from a bond sale that provides Ledn with additional capital to extend new debt.
But the transaction has been scrutinized after bitcoin has fallen nearly 27% since mid-January, prompting margin calls into the loan pool. Ledn was forced to cancel a quarter of the loan aimed at restoring the deal, according to The WSJ.
In other words, the bitcoin-backed credit product faced a stress test early on when bitcoin price fluctuations triggered margin calls across the entire loan book.
Ledn bonds are expected to pay investors between 3 and 6 percent above benchmark rates.
Jefferies, which has been growing its presence in structured finance, has expanded by offering more complex and less-tested asset-backed products.
The bank has also moved into crypto dealmaking, including advising trading platform NinjaTrade on its $1.5 billion sale to exchange Kraken last year.
Initially, Jefferies told investors that Ledn’s bonds would be backed by $199 million in bitcoin-backed loans and $1 million in cash. That mix has changed significantly following the closing, with approximately $150 million in loans and $50 million in equity now making up the mutual fund, The WSJ report.
In other words, what was marketed as a bond backed primarily by interest-bearing mortgages is now heavily backed by cash, indicating structural weakness during a sharp downturn.
S&P bitcoin bond ratings
Despite the setback, the bond deal is still scheduled to close on Feb. 18, according to S&P Global Ratings, which assigned a rating to the notes. Ledn must now refinance the new loans to generate the interest income needed to cover payments to bondholders.
S&P Ratings revealed the framework and key risks behind the Ledn Issuer Trust 2026-1. S&P said the original collateral consisted of 5,441 fixed-rate balloon loans to 2,914 borrowers, with a total principal balance of $199.1 million as of Dec. 31, 2025.
The loan is secured by approximately 4,079 bitcoins, valued at approximately $356.9 million on the closing date, with an approximate interest rate of 11.8% and an approximate loan-to-value ratio of 55.8%.
The report noted that the sharp drop in bitcoin at the beginning of February forced Ledn to cancel a “significant share” of the loan planned for this deal. S&P said all closings were made below the 81.4% LTV limit, shifting the portfolio mix to fewer loans and more cash in the financing account, while keeping total collateral at $200 million.
S&P’s analysis focuses on borrower default behavior, recovery rates at the time of liquidation, and concentration risk.
The agency said that the default driven by the margin shows the most severe stress situation because closing the money occurs when the price of bitcoin falls, which may be small or volatile markets where the execution is most important.
Because Ledn underwrites loans primarily based on bitcoin collateral rather than borrower credit profiles, S&P said standard consumer loan performance metrics are limited.
For the ‘A’ stress level, the agency used a default assumption of 100%, with a modeled stress for the rated notes including a default rate of 79% and a 68% recovery for the A category of the BBB.
S&P highlighted structural reductions including foreclosures, early amortization competitors, revenue reserves funded at 5% of the note balance, and Ledn’s automated closing engine, which it says has successfully closed 7,493 loans in seven years without major losses.
However, S&P flagged key weaknesses, including bitcoin’s historical volatility, regulatory uncertainty, and conflict of interest associated with Ledn’s past practice of borrowing money with unpaid interest.
Ledn plans to require cash interest payments to refinance from 2027, S&P said, easing liquidity pressure over time.
According to the WSJ, If the price of bitcoin falls and the loan exceeds 70% of the value of the collateral, borrowers must add more bitcoin. At 80%, Ledn automatically closes the collateral to pay off the debt.
