The cryptocurrency group is trying to raise capital and avoid bankruptcy of its brokerage firm Genesis in part to avoid immediate repayment of a loan to American financier investment house Todd Bohle.
Boyley, who recently bought Chelsea Football Club, led a debt raise for DCG through his Eldridge investment group in November last year, which consisted of a $600m loan from Eldridge and a group of other investors.
Genesis has already suspended withdrawals in its lending unit, which allowed customers to lend their digital tokens for high returns, and brought in investment bank Moelis to review its options after the failure of cryptocurrency exchange FTX last month sent shockwaves across the industry.
Now, people with direct knowledge of DCG’s finances have said that should this wholly owned subsidiary fail, $350 million still owed from that loan would immediately fall due. One person said that a secured long-term loan ranks above other debts and has certain preferential rights, which means that it will have to be repaid first in any case.
The back-to-back requests for cash illustrate how the implosion of FTX continues to threaten the broader crypto industry, with a few big players like DCG playing an integral role in an allegedly decentralized market.
DCG is one of the industry’s largest and early investors in cryptocurrency and coin projects. The group, founded in 2015 by billionaire investor Barry Silbert, owns assets such as Genesis and investment manager Grayscale. The Financial Times revealed earlier that the companies are linked by a network of loans and investments within the company.
Silbert told investors that $350 million of the Eldridge loan was due after Genesis scaled back operations last month. DCG has $1.6 billion in debt owed to Genesis, but its loan from Eldridge — made alongside investors including California-based asset manager Capital Group, private equity firm Francisco Partners and investment manager Davidson Kempner Capital Management — carries preferential terms. Last month, Genesis said it had “no plans to declare imminent bankruptcy.”
DCG said its relationship with Eldridge is “completely separate from the Genesis restructuring strategy and has no bearing on any outcome in Genesis”. Genesis is wholly owned by DCG. Eldridge declined to comment.
Boehly’s involvement with DCG marks one of many digital asset investments by the American billionaire. In March, Eldridge invested in cryptocurrency and fintech infrastructure company Cross River, and last year backed cryptocurrency exchange and wallet provider Blockchain.com.
Eldridge sees Genesis’ suspension of withdrawals as meaning it can’t pay the debt and is therefore in default, people familiar with the matter said. But these people added that Eldridge was anxious to avoid losing its investment and was working with DCG to help it raise capital and pay Genesis investors, customers and clients.
These include clients of the Winklevoss twin cryptocurrency exchange Gemini, which owes $900 million, and Dutch stock exchange Bitvavo, which owes €280 million. Bitvavo said on Friday that it was able to fund any assets previously locked into DCG and that its affiliates and customers are “not exposed to DCG liquidity issues.”
Creditors have formed a committee and are seeking to recover their money.
DCG was valued at $10 billion last year and is backed by investors, including SoftBank, Ribbit Capital and Alphabet’s venture arm CapitalG.
People said that since the cryptocurrency crisis hit, it has been racing to raise capital and seek liquidity before it has to sell any of its portfolio companies.
Even before confidence in cryptocurrency collapsed in November, DCG debt investors had reduced their holdings, according to securities filings. In September, Capital Group reduced DCG’s holding of $1.26 million in debt by 17 percent.
DCG owes $575 million in Genesis loans due in May 2023, money that was used to fund investments in another subsidiary of its asset manager, Grayscale, as well as share buybacks. It also has $1.1 billion in promissory notes due in 2032, which arose when DCG assumed Genesis’ liabilities after the collapse of digital-assets hedge fund Three Arrows Capital over the summer.
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