Genesis creditors reject previously agreed bankruptcy restructuring plan, DCG says
Are you wondering what's going on with Genesis Capital, the bankrupt crypto lender that owes billions of dollars to its creditors? 😮 You're not alone. In this article, we'll explain the latest developments in this complex and controversial case, and what they mean for the future of Genesis and its parent company, Digital Currency Group (DCG). 🧐
What is Genesis Capital and why did it go bankrupt?
Genesis Capital is a subsidiary of DCG, one of the largest and most influential companies in the crypto industry. DCG owns several other prominent crypto businesses, such as Grayscale Investments, CoinDesk, and Genesis Global Trading. 🚀
Genesis Capital was a crypto lending platform that offered loans to institutional and accredited investors using cryptocurrencies as collateral. It was one of the pioneers and leaders in this field, with over $3 billion in originations by 2020. 💰
However, things went downhill for Genesis Capital in 2021, when it suffered massive losses due to the collapse of two of its major counterparties: FTX, a crypto exchange that defaulted on its obligations to Genesis, and Three Arrows Capital, a hedge fund that was liquidated after betting against Bitcoin. 😱
As a result, Genesis Capital was unable to repay its creditors, who were mostly other crypto lenders and platforms, such as Celsius, Gemini, BlockFi, and Bitfinex. The total amount of claims against Genesis reached over $3.4 billion, according to court documents. 😵
In January 2023, Genesis Capital filed for Chapter 11 bankruptcy protection in the Southern District of New York, hoping to restructure its debt and continue its operations. However, this proved to be a difficult and contentious process, as creditors disagreed on how to divide the remaining assets of Genesis and DCG. 😬
What was the proposed settlement between Genesis, DCG, and creditors?
In February 2023, after weeks of negotiations, Genesis Capital announced that it had reached an \”agreement in principle\” with DCG and its creditors on a comprehensive settlement that would resolve the bankruptcy case. The proposal was submitted to the bankruptcy court for approval. 🙌
The main features of the proposed settlement were: 📝
- DCG would restructure some $1.7 billion of debt and other obligations owed to Genesis by issuing new loans and stock to Genesis creditors. It would also forfeit its ownership in Genesis Global Trading, its non-bankrupt crypto brokerage. 📈
- Genesis creditors would receive an estimated 80% recovery of their claims, depending on the valuation of DCG's stock and the performance of the new loans. This was considered a favorable outcome compared to other scenarios where creditors could get as little as 20% or nothing at all. 🙏
- The settlement would allow Genesis Capital to emerge from bankruptcy as a standalone entity with a new management team and board of directors. It would also enable DCG to continue its operations without being dragged into litigation or liquidation by creditors. 🙌
The settlement was initially supported by creditors representing more than $2 billion of claims against Genesis, including Gemini Trust Co., Celsius Network Ltd., BlockFi Inc., Bitfinex Ltd., Kraken Financial LLC, and others. It seemed like a win-win situation for all parties involved. 🎉
Why did some Genesis creditors reject the settlement?
However, not everyone was happy with the settlement. A group of Genesis creditors representing about $1 billion of claims decided to reject the deal and raise new demands in April 2023. These creditors included FTX Trading Ltd., Three Arrows Capital Pte Ltd., Alameda Research LLC, Binance Holdings Ltd., Huobi Global Ltd., OKCoin Inc., and others. 😠
The reasons for their rejection were not clear, but some speculated that they wanted a higher recovery rate or more control over Genesis' assets. Some also questioned the valuation of DCG's stock and the terms of the new loans offered by DCG. They argued that DCG was getting off too easy by transferring its liabilities to Genesis creditors while keeping its profitable businesses. 😒
The rejection of the settlement threw the bankruptcy process into turmoil and delayed the resolution of the case. DCG expressed its frustration and disappointment with the situation in a tweeted statement. It said that it did not understand the rationale of the dissenting creditors and that their latest maneuver would prolong the court process. It also said that it remained committed to reaching a fair settlement for all and that it would have to take into account any new demands against previous concessions. 😤
What are the possible outcomes of the mediation?
In an attempt to salvage the settlement, Genesis Capital filed a motion for mediation in April 2023, asking the judge overseeing its reorganization to appoint a mediator to facilitate the negotiations between Genesis, DCG, and creditors. The motion was granted and a mediation session was scheduled for May 2023. 🙏
The mediation could result in three possible outcomes: 🤔
- A successful mediation that would lead to a revised settlement that satisfies all parties and allows Genesis to exit bankruptcy as planned. This would be the best-case scenario for Genesis, DCG, and creditors, as it would avoid further litigation and uncertainty. 🎊
- A failed mediation that would lead to a breakdown of the settlement and a return to the bankruptcy court. This would be the worst-case scenario for Genesis, DCG, and creditors, as it would prolong the case and increase the legal costs and risks. It could also result in a liquidation of Genesis or a forced sale of its assets to a third party. 😭
- A partial mediation that would lead to a partial settlement that satisfies some but not all parties and leaves some issues unresolved. This would be a mixed scenario for Genesis, DCG, and creditors, as it would provide some relief but also some challenges. It could also result in further disputes or appeals in the future. 😕
The outcome of the mediation will depend on several factors, such as the willingness of the parties to compromise, the credibility of their arguments and evidence, the fairness and effectiveness of the mediator, and the pressure from the court and other stakeholders. It is hard to predict which way the mediation will go, but it is clear that it will have a significant impact on the fate of Genesis and DCG. 🤞
The Bottom Line
Genesis Capital is facing a critical moment in its bankruptcy case, as some of its creditors have rejected a previously agreed settlement with DCG and raised new demands. This has prompted Genesis to file for mediation in order to save the deal and exit bankruptcy as soon as possible. The mediation could result in a successful, failed, or partial settlement, depending on how the parties negotiate and compromise. The outcome will determine the future of Genesis and DCG, as well as their creditors and customers. 🚨
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