Wall Street’s first attempt at a public bond sale backed by bitcoin loans has hit some turbulence after bitcoin’s sharp decline triggered forced liquidations.

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 reporting. 

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 additional capital to extend new credit.

But the transaction has been tested after bitcoin fell roughly 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.

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.

Ledn’s bonds are expected to pay investors between 3 and 6 percentage points above benchmark rates.

Jefferies, which has been expanding its presence in structured finance, has increasingly offered more complex and less tested asset-backed products. 

The bank has also pushed further into crypto dealmaking, including advising trading platform NinjaTrade on its $1.5 billion sale to exchange Kraken last year.

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 reported.

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.

S&P’s bitcoin bond ratings

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.

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. 

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%.

The report noted that bitcoin’s sharp decline in early February forced Ledn to liquidate a “significant share” 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.

S&P’s analysis focused on borrower default behavior, recovery rates during liquidation, and concentration risk. 

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.

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

At the ‘A’ 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.

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

Still, S&P flagged key weaknesses, including bitcoin’s historic volatility, regulatory uncertainty, and a conflict of interest tied to Ledn’s past practice of rolling loans by capitalizing unpaid interest.

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

According to the WSJ, If bitcoin’s 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.