The Ad Hoc Group, a group of creditors claiming approximately $2.4 billion against bankrupt digital asset lender, Genesis, has opposed the in-principle agreement reached between Digital Currency Group (DCG) and the Committee of Unsecured Creditors (UCC).
Genesis Lender Group Opposed DCG Deal
A court document filed yesterday (Tuesday) shows that DCG, the parent company of Genesis, agreed to pay $275 million before Genesis’ Chapter 11 bankruptcy plan becomes effective. The blockchain-focused venture capital company tentatively agreed to pay approximately $328.8 million in “first-lien” debt two years after the plan received the court’s go-ahead.
Furthermore, DCG proposed to make a payment of around $830 million seven years after the plan was kicked off. This payment is to comprise 55% in US dollars and 45% in Bitcoin and Ethereum, two of the world’s foremost digital currencies. The long-term commitment has an interest rate of 6%.
However, in a separate court filing entered yesterday, the Ad Hoc Group described the proposed amounts as “wholly insufficient.” They criticized the item in the in-principle agreement that grants "non-consensual third-party releases" to DGC. This proposed clause means that DCG will be exempt from any claims or liabilities that could be brought against it by creditors such as the Ad Hoc Group.
The proposed DCG & Creditor terms are out.
— Ram Ahluwalia, higher for longer crypto CFA (@ramahluwalia) August 29, 2023
I can see why @cameron was concerned creditors may not have enough time to assess the deal.
My insta reactions:
- This looks like a great deal for DCG and a bad deal for creditors. No wonder they dropped this the last week of…
Loan Debts
In January, Genesis filed for bankruptcy protection in New York after the collapse of the crypto hedge fund, Three Arrows Capital (3AC), and the cryptocurrency exchange, FTX, went into liquidation, Finance Magnates reported.
According to the Ad Hoc Group, Genesis had exposure of $2.3 billion to 3AC. However, after liquidating the collateral in its possession, the crypto lender reduced the 3AC-related losses to $1.2 billion.
Despite these losses, Genesis allegedly continued to solicit hundreds of millions in additional loans from creditors, including many members of the Ad Hoc Group. Furthermore, DCG reportedly issued a promissory note of $1.1 billion payable to Genesis only in 2032 at an annual interest rate of 1%. However, the Genesis parent company allegedly framed this written promise as a “near-term receivable.”
As a result of Genesis’ losses, DCG is supposed to pay approximately $630 million in May 2023 to Genesis’ creditors. However, it has allegedly failed to do so, the Ad Hoc Group claimed in the court filing.
Maximizing Creditor Recoveries: A Mandate Ignored?
With the in-principle agreement, DCG is now proposing to pay $604 million to the creditors in two years’ time instead of $630 million, the Ad Group asserted. And, instead of releasing $1.1 billion as pledged in the promissory note, DCG is now proposing to pay $830 million in seven years at “sub-market interest rates,” the Ad Hoc Group contended.
UPDATE: DCG/Genesis release new terms of repayment plan for Genesis creditors.
— Andrew (@AP_Abacus) August 29, 2023
TL;DR - it’s not a repayment plan, it’s a snake oil salesman deal for DCG to avoid bankruptcy.
DCG/Barry avoids the embarrassment of bankruptcy, avoid hundreds of millions in loan paybacks. Gross.
“At its essence, [the DCG in-principle deal] demonstrates that [Genesis] and UCC are unwilling to comply with their fiduciary obligations to maximize creditor recoveries, and are instead focused on putting this case behind them,” the Ad Hoc Group noted.
“However, the Ad Hoc Group, which includes dozens of creditors for whom these assets are critical, does not have such luxury and cannot support the proposed terms of the Plan Update which permit DCG to walk away untouched and, in fact, paying less than already committed.”
If the suggested agreement is finalized in official documents and a Chapter 11 plan is put forward, the Ad Hoc Group plans to object to Genesis’ reorganization.
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