Crypto firm Genesis secures landmark agreement

• The agreement will mitigate financial challenges faced by Genesis.
• The proposed amendments could facilitate recoveries ranging from 65% to 90% of assets.

Digital Currency Group (DCG) has reached a preliminary agreement with the creditors of Genesis, its crypto lending subsidiary. This arrangement holds the potential for substantial recoveries, with unsecured creditors possibly obtaining between 70% to 90% of their dues in U.S. dollar equivalents, should the revised plan gain approval.

The proposed amendments could also facilitate recoveries ranging from 65% to 90%, based on the specific denomination of the digital assets involved, according to details outlined in a court filing released on 29 August.

The proposed resolution intends to mitigate financial challenges faced by Genesis. The key aspect of the agreement involves the concept of recovering a significant portion of outstanding liabilities by adopting an approach that takes into consideration the denomination and nature of the digital assets involved.

Potential for significant crypto asset recovery in collaboration

A notable highlight of this plan revolves around the potential recovery percentages. The agreement specifies that unsecured creditors might receive between 70% and 90% of their claims in terms of U.S. dollar equivalents.

Furthermore, the amended strategy could lead to recoveries ranging from 65% to 90% through an in-kind allocation mechanism. The effectiveness of this aspect was determined by the specific types and denominations of the digital assets in question.

To effectively address its prevailing liabilities, which included significant sums such as $630 million in unsecured loans due in May 2023 and an additional $1.1 billion under an unsecured promissory note maturing in 2032, DCG proposed a comprehensive solution.

This solution encompassed not only entering into new debt facilities, but also embracing a partial repayment agreement. The details indicated that these debts were structured through a first-lien facility of $328.8 million with a two-year maturity and a second-lien facility of $830 million with a maturity extending to seven years.

The financial commitment of DCG within this proposed strategy was underscored by its agreement to contribute $275 million in installments ahead of the plan’s effective commencement date.

This was intended to reflect the firm’s dedication to fulfilling its obligations as outlined in the proposed recovery plan.

Genesis found itself amidst the challenges posed by the profound bear market of 2022. In response to these adverse market conditions, the firm opted for a bankruptcy filing in January 2023.

At that time, the firm had accumulated a substantial liability exceeding $3.5 billion owed to its top 50 creditors. This group of creditors included renowned entities such as Gemini and VanEck’s New Finance Income Fund.

The scenario leading to this strategic agreement was further shaped by significant market events. Genesis suspended withdrawals in mid-November 2022 due to extraordinary market turbulence attributed to the collapse of FTX.

The company cited the unprecedented nature of this event, which resulted in an unusually high number of withdrawal requests that exceeded its available liquidity.