DCG’s Payment Plan on Shaky Ground as Genesis Lender Group Objects

DCG’s Payment Plan on Shaky Ground as Genesis Lender Group Objects

Time Stamp: August 30, 2023 12:21 PM
Source Node: 2243779

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).

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 also tentatively agreed to pay approximately $328.8 million in
“first-lien” debt two years after the plan
receives 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 comes
with an interest rate of 6%.

However, in
a separate court filing also entered yesterday, the Ad
Hoc Group described the proposed amounts as “wholly insufficient”. They also
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 exempted from any claims or liabilities that could be
brought against it by creditors such as the Ad Hoc Group

Loan Debts

In January,
Genesis filed for
bankruptcy protection in New York after the collapse of crypto hedge
fund, Three Arrows Capital
(3AC), and
cryptocurrency exchange, FTX, threw its business into a liquidation
crisis, Finance Magnates reported.

According to the Ad Hoc Group, Genesis had a $2.3 billion exposure to 3AC. However, after liquidating
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 further asserted. In addition, 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 further
contended.

“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.

SEC charges Citigroup; FMA and FCA warn against clone websites; read today’s news nuggets.

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).

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 also tentatively agreed to pay approximately $328.8 million in
“first-lien” debt two years after the plan
receives 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 comes
with an interest rate of 6%.

However, in
a separate court filing also entered yesterday, the Ad
Hoc Group described the proposed amounts as “wholly insufficient”. They also
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 exempted from any claims or liabilities that could be
brought against it by creditors such as the Ad Hoc Group

Loan Debts

In January,
Genesis filed for
bankruptcy protection in New York after the collapse of crypto hedge
fund, Three Arrows Capital
(3AC), and
cryptocurrency exchange, FTX, threw its business into a liquidation
crisis, Finance Magnates reported.

According to the Ad Hoc Group, Genesis had a $2.3 billion exposure to 3AC. However, after liquidating
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 further asserted. In addition, 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 further
contended.

“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.

SEC charges Citigroup; FMA and FCA warn against clone websites; read today’s news nuggets.

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