Crypto lender Genesis files for bankruptcy protection

April 2023 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

April 2023 Issue

Another casualty of the contagion spreading across the cryptocurrency sector in the wake of the collapse of FTX, industry pioneer and digital currency prime brokerage Genesis Global Holdco, LLC has filed for Chapter 11 bankruptcy protection.

As part of its Chapter 11 filing, which includes subsidiaries Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd, Genesis has proposed a roadmap to an exit including a Chapter 11 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.

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.

The Chapter 11 plan contemplates a dual track process in pursuit of a sale, capital raise or equitisation transaction that would enable the business to emerge under new ownership. The company will initiate a marketing and sale process to monetise 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 a reorganised company.

“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 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,” said Derar Islim, interim chief executive of Genesis. “We deeply appreciate our clients’ ongoing patience and partnership as we work towards an equitable solution.”

Alongside the Chapter 11 filing, Genesis and its advisers have been engaged in ongoing discussions with advisers to its creditors and corporate parent digital currency group (DCG) to evaluate the most effective path to preserve assets and move the business forward.

To that end, Genesis has commenced a court-supervised restructuring process – all aspects of which will be overseen by an independent special committee of the company’s board of directors – to further advance these discussions and reach a holistic solution for its lending business, which, if achieved, would provide an optimal outcome.

Genesis has more than $150m in cash on hand which will provide ample liquidity to support its ongoing business operations and facilitate the restructuring process. Moreover, the company has filed a number of customary ‘first day’ motions with the court to enable day to day operations to continue in the normal course.

Acting as financial adviser to Genesis is Moelis & Company, with Cleary Gottlieb Steen & Hamilton LLP acting as legal counsel. Alvarez & Marsal is serving as restructuring adviser.

“We have crafted a deliberate process and roadmap through which we believe we can reach the best solution for clients and other stakeholders,” concluded Paul Aronzon, an independent director at Genesis. “We look forward to advancing our dialogue with DCG and our creditors’ advisers as we seek to implement a path to maximize value and provide the best opportunity for our business to emerge well-positioned for the future.”

Fraser Tennant