DCG Strikes A Debt Deal To Cut Off Some Limbs To Try Save The Patient

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Following its high-profile bankruptcy three weeks ago, the lending arm of crypto institutional brokerage Genesis has reportedly agreed on an in-principle restructuring plan. An anonymous source cited by CoinDesk revealed that the deal involves Genesis’s main creditors and its parent company, Digital Currency Group (DCG), run by crypto billionaire Barry Silbert.

Cognizant of the fact that Genesis owes its main creditors almost $2.4 billion out of the approximately $3.4 billion in liabilities the company cited in its bankruptcy filing, DCG plans to sell its subsidiary Genesis’ crypto trading business as well as its lending unit that has been restructuring through bankruptcy. Eventually, they will also close down the Genesis loan book entirely. A Genesis attorney disclosed the news on Monday, February 6, as the company revealed an agreement with creditors.

Genesis Attorney Breaks Down The Proposed Settlement

Genesis’ legal rep Gottlieb attorney Sean O’Neal explained the proposed settlement clearly during the status hearing for the crypto lender, which filed for Chapter 11 bankruptcy protection in January. He said that on Monday, DCG and Genesis made a pact with a select group of creditors, with Coindesk, a news site owned by DCG, reporting the development.

In principle, the pact was reached after an impromptu meeting between creditors, DCG, and Gemini Trust Co. Citing O’Neal:

Under the settlement, DCG would contribute that entity, [Genesis Global Trading], to [Genesis Global Holdco] … that will happen on the effective date.

O’Neal also added, “in the meantime, during these cases, we will actually be marketing and trying to sell not only the debtors’ assets, but also GGT’s because they form a nice package, and we believe that by packaging them together, we can maximize the recoveries to the estate.”

Additional elements in the proposed agreement will see the debt DCG owes Genesis Holdco, one of the legal entities that filed for bankruptcy, restructured. Based on the new terms, DCG will provide a second lien-term loan facility set to mature by June 2024. In this regard, O’Neal explained, “There will be two tranches.” Tranche one will be denominated in U.S. dollars and pay 11.5% interest, while tranche two will be denominated in Bitcoin (BTC) and will pay 5% interest.

The deal also involves refinancing a $100 million loan in Bitcoin and a $500 million loan in cash that DCG borrowed from the struggling crypto brokerage. This pact marks a significant step in resolving one of the most high-profile bankruptcies in the crypto industry in 2022.

DCG To Provide A Class Of Convertible Preferred Stock

According to O’Neal, DCG has also consented to provide a class of convertible preferred stock, although they are still working on the finer details of this issuance. In a press release published after the hearing ended, however, DCG said it would exchange its existing $1.1 billion promissory note for this convertible stock, which is currently due in 2032.

Commenting on the development, Gemini co-founder Cameron Winklevoss said as part of the plan, Gemini would contribute “up to $100 million more for Earn users.”

1/ Today, @Gemini reached an agreement in principle with Genesis Global Capital, LLC (Genesis), @DCGco, and other creditors on a plan that provides a path for Earn users to recover their assets. This agreement was announced in Bankruptcy Court today.

— Cameron Winklevoss (@cameron) February 6, 2023

Winklevoss acknowledged that “There is still much work to be done to complete this process, including further due diligence of Genesis financials and judicial approval of this plan,” adding:

…but we are confident that we now have a framework in place to execute on.

Gemini signed a collaboration with Genesis to offer the Earn yield product until November 16, when Genesis declared its lending business would be suspending withdrawals. The move affected the ability of Gemini Earn customers to access their funds.

The cryptocurrency brokerage’s struggles hugely track back to the onset of the 2022 Crypto Winter, and while Genesis’s Chapter 11 filing articulates the connections between it and other major players in the industry, most of them are now insolvent or in trouble.

Among them, crypto hedge fund Three Arrows Capital (3AC) started the chain of going under last year after it had taken out a $2.36 billion loan from Genesis Asia Pacific Pte. Ltd. (one of Genesis’s subsidiaries) that also filed for bankruptcy in the end.