Genesis failure would land owner with $350mn payout to financier Todd Boehly

Crypto conglomerate Digital Currency Group is attempting to raise capital and avoid the bankruptcy of its Genesis broking subsidiary in part to avert the immediate repayment of a loan to US financier Todd Boehly’s investment house.

Boehly, who recently bought Chelsea Football Club, led a debt raise for DCG through his investment group Eldridge in November last year, comprising of a $600mn loan from Eldridge and a group of other investors.

Genesis has already suspended withdrawals at its lending unit, which allowed customers to loan out their digital tokens for high yields, and hired investment bank Moelis to review its options after crypto exchange FTX’s failure last month sent shockwaves across the industry.

Now, people with direct knowledge of DCG’s finances have said that if this wholly owned subsidiary were to fail, $350mn still outstanding from this loan would immediately fall due. The senior secured term loan ranks higher than other debt and has certain preference rights, meaning it would have to be repaid first in any situation, one of the people said.

The cascading demands for cash illustrate how the implosion of FTX continues to threaten the broader crypto industry, where a few large players such as DCG play a core role in a market that purports to be decentralised.

DCG is one of the industry’s largest and earliest investors in crypto projects and coins. The group, founded in 2015 by billionaire investor Barry Silbert, owns assets such as Genesis and investment manager Grayscale. The companies are linked by a web of intra company loans and investments, the FT has previously revealed.

Silbert told investors that $350mn of the Eldridge loan was outstanding after Genesis curtailed its operations last month. DCG has $1.6bn in debts due to Genesis but its loan from Eldridge — made alongside investors including Californian asset manager Capital Group, private equity firm Francisco Partners and investment manager Davidson Kempner Capital Management — bears preferential terms. Last month, Genesis said it had “no plans to file bankruptcy imminently”.

DCG said its relationship with Eldridge “is entirely separate from Genesis’ restructuring strategy and has no bearing on any outcome at Genesis”. Genesis is wholly owned by DCG. Eldridge declined to comment.

Boehly’s involvement with DCG marks one of several digital asset investments by the US billionaire. In March, Eldridge invested in fintech and crypto infrastructure company Cross River and last year it backed crypto exchange and wallet provider

Eldridge holds the view that Genesis’s suspension of withdrawals means it cannot repay debts and therefore is in default, people familiar with the matter said. However those people added that Eldridge was keen to avoid losing his investment and was working with DCG to help it raise capital and pay Genesis’s investors, clients and customers.

That includes customers of the Winklevoss twins’ crypto exchange Gemini, which is owed $900mn, and Dutch exchange Bitvavo, which is owed €280mn. Bitvavo said on Friday that it was able to pre-fund any locked assets at DCG and its subsidiaries and its customers “are not exposed to DCG liquidity issues”.

The creditors have formed a committee as they seek to regain their funds.

DCG was valued at $10bn last year and is backed by investors, including SoftBank, Ribbit Capital and Alphabet’s venture arm CapitalG.

Since the crypto crisis erupted, it has been racing to raise capital and is seeking cash before potentially having to sell any of its portfolio companies, the people said.

Even before the collapse in crypto confidence this November, investors in DCG’s debt had marked down their holdings, according to securities filings. In September, Capital Group marked down a $1.26mn holding of DCG debt by 17 per cent.

DCG owes Genesis $575mn worth of loans due in May 2023, money that was used to fund investments in another of its subsidiaries, asset manager Grayscale, as well as share buybacks. It also has a $1.1bn promissory note due in 2032, which arose when DCG assumed the liabilities of Genesis following the collapse of digital asset hedge fund Three Arrows Capital over the summer.

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