Voyager Digital recoveries remain theoretical in crypto Chapter 11 collapse

Legal Analysis 6 July

Voyager Digital recoveries remain theoretical in crypto Chapter 11 collapse

Voyager Digital Holdings (Voyager), a cryptocurrency brokerage and lender, recently filed a proposed Chapter 11 plan, which contemplates a standalone restructuring that may be effectuated without the need for a sale or a strategic partner. The company describes the plan as a “stalking horse proposal” as it continues to solicit interest from third-party investors to sponsor the plan or otherwise provide financing in exchange for partial or full ownership of the reorganized company.

Prepetition capital structure

The company’s prepetition capital structure comprises an unsecured revolving credit facility (Alameda Loan Facility) with Alameda Ventures Ltd (Alameda) comprised of (i) USD 200m cash and USD coin (USDC), a form of stablecoin, and (ii) 15,000 Bitcoin. As of the Petition Date, the total value of aggregate consideration available under the Alameda Loan Facility is estimated to be USD 500m. Moreover, as of the Petition Date, 75 million USDC are outstanding with an estimated aggregate value of USD 75m. A summary of the debtors’ prepetition capital structure is set forth below.

As set forth in the debtors’ first day declaration, the debtors entered into the Alameda Loan Facility following a series of liquidity events in the cryptocurrency realm, including the collapse of Terra LUNA, a form of cryptocurrency that was used to execute transactions on the Terra open source blockchain protocol created by Terraform Labs. The financing served as part of the company’s efforts to stabilize its business and to ensure adequate capitalization and liquidity.

While the debtors have not filed a disclosure statement in conjunction with their proposed plan, the first day declaration sheds some light on the relationship between Alameda and the debtors. Alameda is presently the debtors’ largest unsecured creditor, holding a claim for USD 75m in connection with the unsecured loan while also serving as a counterparty to an approximately USD 377m loan made by the debtors to Alameda. The company has not explicitly disclosed how the proposed plan fully addresses and offsets the various amounts owed between the parties but, as discussed in greater detail below, the proposed plan seeks to cancel claims arising from the Alameda Loan Facility.

Recoveries

Under the terms of the proposed plan, secured tax and other priority claims will be paid in full or receive some other treatment to render such allowed claims unimpaired. In contrast, holders of general unsecured claims will receive a pro rata share of a “claims allocation pool” (which the plan does not yet define) while claims arising from the Alameda Loan Facility, section 510(b) claims, and existing equity interests will be cancelled, released, and discharged with no distributions.

Meanwhile, the plan provides that account holders will receive a combination of (i) coins, (ii) new common stock in the reorganized Voyager, (iii) existing Voyager tokens held by the debtors as of the Petition Date; and (iv) any recovery the debtors receive on account of their loan to Three Arrows Capital Ltd (Three Arrows). Such recovery, however, is subject to a holder’s election to increase or decrease its pro rata recovery of equity in the reorganized Voyager in exchange for an equal increase or decrease in the amount of coins such account holder will be entitled to. Notably, Three Arrows filed a Chapter 15 proceeding earlier last week in the US Bankruptcy Court for the Southern District of New York, seeking recognition of its liquidation proceedings in the British Virgin Islands.

Finally, the treatment of intercompany claims and interests will be contingent, in part, upon a “restructuring transactions memorandum” to be included as part of a plan supplement. Specifically, intercompany claims will be reinstated or converted to equity and otherwise set off, distributed, or cancelled in accordance with the “restructuring transactions memorandum.” Similarly, intercompany interests will be either be reinstated or otherwise set off, distributed, or cancelled in accordance with the “restructuring transactions memorandum” as well.

Other notable aspects

The proposed plan further provides for the release of Alameda, among others. A summary of the salient terms is set forth below. Note that the plan provides that the following definitions and any related provisions “remain subject to an ongoing investigation.”

Finally, the proposed plan also contemplates the appointment of a new board upon the company’s emergence. The debtors intend to disclose the identity and membership of the new board either in the plan supplement or prior to commencement of the confirmation hearing.

The case is pending before Judge Michael Wiles of the US Bankruptcy Court for the Southern District of New York.

More information on this restructuring is available for subscribers at the Debtwire Case Profile.

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