Genesis Global Holdco, LLC – Digital Currency Group’s Leading Digital Brokerage Latest of Crypto Dominoes to Fall into Chapter 11, Top 50 Creditors List Notes @$3.5bn of Unsecured Claims; Will Pursue Dual Track Sale or Reorganization Plan

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January 19, 2023 –  Genesis Global Holdco, LLC and two affiliate debtors (“Genesis," “GGH” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 23-10063 (Judge Sean Lane). The Debtors, “an industry pioneer and digital currency prime brokerage*," are represented by Sean A. O'Neal of Cleary Gottlieb Steen & Hamilton LLP. Further board-authorized engagements include: (i) Moelis & Company as financial advisors, (ii) Alvarez & Marsal as restructuring advisor and (iii) Kroll Restructuring Administration Inc. as claims agent. 

* The Debtors note as their role as cyypto broker to the wider crypto and mainstream financial services sector: "Genesis provides the full suite of services global investors require for their digital asset portfolios. It offers institutional funds, market makers and other entities digital asset OTC trading, institutional lending, custody and prime brokerage services." Notably, the Debtors are 100% owned by Barry Silbert's Digital Currency Group ("DGC") which describes itself as "The epicenter of the bitcoin and blockchain industry" with DGC's cypto portfolio/web listed here.

The Debtors’ lead petition notes between 1 and 50 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn**. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) "Various Lenders as defined in certain Master Digital Asset Loan Agreements entered into with Gemini Trust Company, LLC, as agent for the Lenders" ($766.0mn unliquidated, disputed loan claim), (ii) unnamed ("On file") ($462.2mn "Loan Payable/Collateral Payable" claim) and (iii) unnamed ("On file") ($230.0mn "Loan Payable/Collateral Payable" claim).

** As of November 30, 2022, the total value of the Debtors’ assets was approximately $5.3bn, and liabilities were approximately $5.1bn on a combined basis, including intercompany balances. Also note that the Debtors' list of top 50 unsecured creditors has claims approaching the @$3.5bn mark)

The Debtors' list of top 50 unsecured claims continues, with all 50 claims in excess of $10.0mn. The list is fairly evenly divided between those creditors who are named (including Mirana Corp.($151.6mn), Moonalpha Financial Services Limited ($150.0mn), Coincident Capital International, Ltd.($112.3mn), Donut, Inc.($78.3mn), Altcoinomy SA ($61.8mn), Streami Inc. ($56.8mn), Heliva International Corp ($55.0mn), VanEck New Finance Income Fund, LP ($53.1mn) etc) and those who prefer to remain in the crypto shadows.

Highlights

  • Institutional Crypto Broker Files for Bankruptcy with $5.1bn of Liabilities
  • Debtors Cite "Digital Asset Industry…Turmoil" and Numerous Crypto Industry Bankruptcies
  • Already Filed Placeholder Plan Has Debtors Pursue Dual Track: Sales Followed by Litigation OR Reorganization
  • Notes $1.65bn Owed to it by Affiliates Connected to Parent (Barry Silbert's Digital Currency Group, Inc., or "DGC")
  • Negotiations to Continue with DGC and Ad Hoc Groups Holding $2.0bn of Debt, with Debtors Eyeing Mediation
  • Special Committee Appointed Comprised of  Restructuring Veterans Paul Aronzon and Thomas Conheeney
  • Special Committee Engages former Acting U.S. Attorney for SDNY Lev Dassin to Investigate DGC Transactions and Gemini Trust Company, LLC ('Gemini') Transactions

Petition Date Press Release

In a press release announcing the filing, the Debtors advised that: “As previously announced, Genesis and its advisors have been engaged in ongoing, productive discussions with advisors to its creditors and corporate parent Digital Currency Group ('DCG') to evaluate the most effective path to preserve assets and move the business forward. Genesis has now commenced a court-supervised restructuring process to further advance these discussions and reach a holistic solution for its lending business, which, if achieved, would provide an optimal outcome for Genesis clients and Gemini Earn users.

Genesis Global Holdco, LLC ('GGH') and two of its lending business subsidiaries, Genesis Global Capital, LLC ('GGC') and Genesis Asia Pacific Pte. Ltd. (“GAP”), filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “court”). Genesis’s other subsidiaries involved in the derivatives and spot trading and custody businesses and Genesis Global Trading are not included in the filing and continue client trading operations. 

As part of its Chapter 11 filing, Genesis has proposed a roadmap to an exit including a Chapter 11 plan (the 'plan') that calls for a framework for a global resolution of all claims through, and the creation of, a trust that will distribute assets to creditors. The plan contemplates a dual track process in pursuit of a sale, capital raise and/or equitization transaction that would enable the business to emerge under new ownership. The company will initiate a marketing and sale process to monetize GGH’s assets or otherwise raise capital, using the transaction proceeds to pay creditors fairly and equitably. If the marketing process does not result in a sale or capital raise, creditors will receive ownership interests in Reorganized GGH.

All aspects of the restructuring process will be overseen by an independent special committee [Paul Aronzon and Thomas Conheeney] of the company’s board of directors. 

Genesis has more than $150 million in cash on hand which will provide ample liquidity to support its ongoing business operations and facilitate the restructuring process.”

Derar Islim, the Debtors' Interim CEO commented: ““While we have made significant progress refining our business plans to remedy liquidity issues caused by the recent extraordinary challenges in our industry, including the default of Three Arrows Capital and the bankruptcy of FTX, an in-court restructuring presents the most effective avenue through which to preserve assets and create the best possible outcome for all Genesis stakeholders…"

Goals of the Chapter 11 Filings

The Aronzon Declaration (defined below) provides: “While the Company’s discussions with advisors to the DCG Entities and the Ad Hoc Groups have been fruitful, they have not achieved a global resolution of all the numerous issues facing the Company and its various stakeholders. Accordingly, the Debtors commenced the Chapter 11 Cases with a goal of continuing their efforts to achieve a consensual resolution….The discussions among the advisors to GGC, the DCG Entities and the Ad Hoc Groups are continuing even as the Chapter 11 Cases are being commenced. The Debtors will
continue trying to broker an agreement in principle among a core group of stakeholders prior to the first day hearing and look forward to reporting on any progress to the Court as soon as possible. To the extent that an agreement is not reached imminently, the Debtors intend to seek the appointment of a mediator, but the Debtors are hopeful that a deal can be reached without the assistance of a mediator.”

Plan Overview

The Aronzon Declaration (which attached a Plan term sheet at exhibit A) provides: "Under the Plan, holders of general unsecured claims against the Debtors will receive a combination of (i) available cash and other assets, (ii) equity interests in Holdco and (iii) trust units entitling holders to receive their pro rata shares of the proceeds from certain causes of action and other claims of the Debtors, including proceeds from the DCG Note, the DCG Loans, avoidance actions against various parties and other claims against the DCG Entities and Gemini, in each case to be set forth in the Plan. The assets contributed to the trust will be the subject of ongoing discussions and negotiations with the Debtors’ stakeholders.

To maximize the value of such recoveries, the Debtors intend to seek court approval to conduct a competitive marketing and sales process to sell their assets or otherwise raise capital during these Chapter 11 Cases. If the marketing and sales process does not result in the sale of all or substantially all of the Debtors’ assets, the holders of general unsecured claims will receive 100% of the equity interests in Holdco, subject to dilution for a management incentive plan and perhaps other equity grants or awards of options or warrants, which in turn will own any unsold assets."

The following is a summary of classes, claims, voting rights and expected recoveries for (defined terms are as defined in the Plan and/or Disclosure Statement)

Interests in GGH 

  • Class 1 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
  • Class 2 (“Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
  • Class 3 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Each Holder shall receive its Pro Rata share of (i) the Available Assets (including proceeds of the Asset Sale that are allocated, in the Debtors’ discretion, to GGH), (ii) to the extent an Equitization occurs, one hundred percent (100%) of the Interests in Reorganized GGH, subject to dilution on account of the MIP, (iii) the Class A1 GUC Trust Units, (iv) the Class B2 GUC Trust Units, and (v) if such Holder has elected to opt into the releases set forth in the DCG Settlement Procedures and Article IV.E of the Plan, the Class B1 GUC Trust Units..
  • Class 4 (“Subordinated Claims”) is impaired, deemed to accept and not entitled to vote on the Plan.
  • Class 5 (“Intercompany Claims”) is impaired or unimpaired, presumed to accept or deemed to reject and not entitled to vote on the Plan.
  • Class 6 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Interests in GGC 

  • Class 1 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
  • Class 2 (“Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
  • Class 3 (“Institutional Unsecured Claims”) is impaired and entitled to vote on the Plan. Each Holder of an Allowed General Unsecured Claim against GGC shall receive its Pro Rata share of (i) the Available Assets (including proceeds of the Asset Sale that are allocated, in the Debtors’ discretion, to GGC), (ii) to the extent an Equitization occurs, its Pro Rata Share of one hundred percent (100%) of the Interests in Reorganized GGH, subject to dilution on account of the MIP, (iii) the Class A2 GUC Trust Units, (iv) the Class B2 GUC Trust Units, and (v) if such Holder has elected to opt into the releases set forth in the DCG Settlement Procedures and Article IV.E of the Plan, the Class B1 GUC Trust Units.
  • Class 4 (“Gemini Lender Unsecured Claims”) is impaired and entitled to vote on the Plan. Each Holder of an Allowed Gemini Lender Unsecured Claim against GGC shall receive its Pro Rata share of (i) the Available Assets (including proceeds of the Asset Sale that are allocated, in the Debtors’ discretion, to GGC), (ii) to the extent an Equitization occurs, one hundred percent (100%) of the Interests in Reorganized GGH, subject to dilution on account of the MIP, (iii) the Class A2 GUC Trust Units, (iv) the Class B2 GUC Trust Units, (v) the Class C2 GUC Trust Units, (vi) if such Holder has elected to opt into the releases set forth in the DCG Settlement Procedures and Article IV.E of the Plan, the Class B1 GUC Trust Units, and (vii) if such Holder has elected to opt into the releases set forth in the Gemini Settlement Procedures and Article IV.F of the Plan, the Class C1 GUC Trust Units,.
  • Class 5 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 6 (“Intercompany Claims”) is impaired or unimpaired, presumed to accept or deemed to reject and not entitled to vote on the Plan.
  • Class 7 (“Intercompany Interests”) is impaired or unimpaired, presumed to accept or deemed to reject and not entitled to vote on the Plan.

Interests in GAP

  • Class 1 (“Other Priority Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
  • Class 2 (“Secured Claims”) is unimpaired, presumed to accept and not entitled to vote on the Plan.
  • Class 3 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Each Holder shall receive its Pro Rata share of (i) the Available Assets (including proceeds of the Asset Sale that are allocated, in the Debtors’ discretion, to GAP), (ii) to the extent an Equitization occurs, one hundred percent (100%) of the Interests in Reorganized GGH, subject to dilution on account of the MIP, (iii) the Class A3 GUC Trust Units, (iv) the Class B2 GUC Trust Units, and (v) if such Holder has elected to opt into the releases set forth in the DCG Settlement Procedures and Article IV.E of the Plan, the Class B1 GUC Trust Units.
  • Class 4 (“Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 5 (“Intercompany Claims”) is impaired or unimpaired, presumed to accept or deemed to reject and not entitled to vote on the Plan.
  • Class 6 (“Intercompany Interests”) is impaired or unimpaired, presumed to accept or deemed to reject and not entitled to vote on the Plan.

The Debtors' Crypto Assets

The Leto Decalration provides: "A substantial portion of the Debtors’ assets as of November 30, 2022 (valued at approximately $5.0 billion) were in the form of loan receivables, including intercompany balances, assets held digitally and securely by cloud computing service providers, cryptocurrency investments that are either held with custodians, exchanges, crypto wallets securely held in cold storage, self custody, collateral pledged to external parties, cash in banks, and brokerage accounts located in the United States. Within the United States, the Debtors had digital assets as of the Petition Date valued at approximately $500 million primarily located on a in a cloud-based selfcustody storage."

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Aronzon Declaration”) [Docket No.], Paul Aronzon, appointed a member of the Special Committee of Board of Directors in November 2022, provides sweepingly: “As has been widely reported, the digital asset industry has been experiencing significant turmoil, as evidenced by the various bankruptcy filings of Three Arrows Capital, FTX Trading Ltd., Voyager Digital Holdings, Celsius Network LLC, BlockFi Inc. and other companies involved in the cryptocurrency industry. This crisis of confidence and turmoil has deeply affected the Company."

Creditor Negotiations and Investigation of Prepetition Transactions 

Aronzon continues: "Almost immediately upon my appointment, under the direction of the Special Committee, GGC and its legal and financial advisors began to engage in substantive discussions with creditors, focusing on two ad hoc groups of GGC lenders representing more than $2 billion in outstanding loans (the 'Ad Hoc Groups'). In addition, GGC and its advisors engaged in substantive discussions with the DCG Entities which owe the Debtors at least $1.65 billion, including approximately $575 million in loans due in May 2023 (the 'DCG Loans') and a $1.1 billion promissory note due in June 2032 (the 'DCG Note'). As part of these efforts, GGC and its advisors provided access to information on an advisors’ eyes only basis to allow advisors to the
Ad Hoc Groups to conduct diligence. GGC and its advisors also actively facilitated multiple discussions and in-person meetings among the various advisors to the Ad Hoc Groups and the DCG Entities, resulting in the exchange of more than ten iterations of term sheets and proposals since my appointment.

In the exercise of its fiduciary duties, the Special Committee has directed the Company’s counsel, Cleary Gottlieb Steen & Hamilton LLP, to investigate certain prepetition transactions involving the Company, the DCG Entities and others. The investigation is led by Lev Dassin, a former Acting U.S. Attorney for the Southern District of New York, who has significant experience in internal investigations, government enforcement matters, and related civil litigation. Among other things, this investigation is focused on GGC’s lending of approximately $850 million in unsecured loans to the DCG Entities, the DCG Note, various transactions that restructured the $850 million in unsecured loans in November 2022, DCG’s purported exercise of a $52.5 million set off in November 2022, the treatment of the DCG Note by the Company and the DCG Entities for accounting and other purposes and related communications with lenders, dividends paid by the Debtors to DCG, and other conduct between the DCG Entities and the Company. The purpose of this investigation is, among other things, to assess whether the Debtors have viable claims against the DCG Entities and other parties related to these transactions and assist the Special Committee in the exercise of its independent fiduciary duties as the Company continues to pursue a consensual restructuring. In addition, the Special Committee and the Company’s advisors are also investigating potential avoidance actions and other potential actions concerning the DCG Entities, Gemini Trust Company, LLC ('Gemini'), and the Company’s Lenders. The Special Committee is also working with the Company and its professionals to respond to various regulators and regulatory investigations or actions."

Prepetition Shareholders

The lead Debtor is 100% owned by Digital Currency Group, Inc.

About the Debtors

According to the Debtors: “Genesis is a full-service digital currency prime brokerage providing a single point of access for select qualified individuals and global institutional investors. Genesis combines unrivaled operational excellence, a seamless user experience, and best-in-class client service to provide the full suite of services global investors require to manage their digital asset portfolios.

The firm offers sophisticated market participants a fully integrated platform to trade, borrow, lend, and custody digital assets, creating new opportunities for yield while increasing capital efficiency for counterparties."

Corporate Structure (see Docket No. 18)

Note as to three Debtors:

1. Genesis Global Holdco, LLC is 100% owned by Digital Currency Group, Inc.
2. Genesis Global Capital, LLC is 100% owned by Genesis Global Holdco, LLC.
3. Genesis Asia Pacific Pte. Ltd. is 100% owned by Genesis Global Holdco, LLC.

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