Thread by Ram Ahluwalia, crypto CFA
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- Feb 11, 2023
- #PoliticalEconomy
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1/ Gemini-DCG-Genesis Joint Plan:
There is a lot to like here. Multiple ways for creditors to improve recovery:
- share in the ups from DCG IPO before Feb 2025 (plot Twist)
- path to equity in DCG (and potential for 2 board seats)
- participation in 3AC recoveries
- GBTC exposure
There is a lot to like here. Multiple ways for creditors to improve recovery:
- share in the ups from DCG IPO before Feb 2025 (plot Twist)
- path to equity in DCG (and potential for 2 board seats)
- participation in 3AC recoveries
- GBTC exposure
2/ There are multiple 'embedded options' - different ways creditors can get back to even. I expect claim value to go up substantially.
Note: We still don't know if FTX clawback on Genesis loan will happen (50% of recovery value). So far no such claim on the FTX docket (good)
Note: We still don't know if FTX clawback on Genesis loan will happen (50% of recovery value). So far no such claim on the FTX docket (good)
3/ Plan A remains to sell Genesis and its assets whole or in part and make creditors whole with proceeds (unlikely).
Plan B: Restart Genesis, pay creditors now and over time, create equity alignment. This thread is focused on Plan B.
Plan B: Restart Genesis, pay creditors now and over time, create equity alignment. This thread is focused on Plan B.
4/ Highlights from Joint Plan:
- DCG must use commercially reasonable efforts to IPO by Feb 2025 (big reveal)
- Creditors have an option to participate in the upside via conversion of Convertible Preferred interest into DCG equity
- Creditors would get 2 independent board seats
- DCG must use commercially reasonable efforts to IPO by Feb 2025 (big reveal)
- Creditors have an option to participate in the upside via conversion of Convertible Preferred interest into DCG equity
- Creditors would get 2 independent board seats
5/ Genesis can pay back claims 'in-kind' (crypto) or fiat - depending on how the claim is denominated. Subject to commercially reasonable efforts.
Creditors were upset that deposits were crystallized on Petition Date. This fixes that.
Creditors were upset that deposits were crystallized on Petition Date. This fixes that.
6/ Forbearance. The $575 MM DCG owes (now $600 MM...) is restructured and due June 2024.
The loan has 2 tranches: 11.5% interest rate on the $475 MM component and a 5% rate on the BTC tranche
This reduces the heat on DCG to make a large payment and avoids a firesale of assets
The loan has 2 tranches: 11.5% interest rate on the $475 MM component and a 5% rate on the BTC tranche
This reduces the heat on DCG to make a large payment and avoids a firesale of assets
7/ DCG $1.1 Bn loan is restructured into Convertible Preferred stock.
It would be issued at a $575 MM with a 10% rate rather than a 10-year loan with no interest payments.
(Note: PV is largely the same - this gives creditors faster payment & participation in DCG equity)
It would be issued at a $575 MM with a 10% rate rather than a 10-year loan with no interest payments.
(Note: PV is largely the same - this gives creditors faster payment & participation in DCG equity)
8/ DCG can convert their Preferred Stock in to DCG equity. So they get the interest but also equity upside if DCG exchange listing is successful. Win win. The big unknown is how to value DCG.
The equity conversion has a formula (e.g., could be 20 to 40% of DCG) - a collar...
The equity conversion has a formula (e.g., could be 20 to 40% of DCG) - a collar...
9/ An independent valuation agent will value DCG each quarter.
The Public will see quarterly financials from DCG. We are going to learn a lot about DCG & Grayscale profitability, and DCG's balance sheet.
The Public will see quarterly financials from DCG. We are going to learn a lot about DCG & Grayscale profitability, and DCG's balance sheet.
10/ 3AC: Creditors not only get a faster payback on the $1.1 Bn, but also get first 3AC recoveries.
DCG will contribute the first $25 MM of recoveries from 3AC BK process to Genesis creditors and any assets pledged from 3AC to Genesis.
Note: Creditors are 'net long' crypto
DCG will contribute the first $25 MM of recoveries from 3AC BK process to Genesis creditors and any assets pledged from 3AC to Genesis.
Note: Creditors are 'net long' crypto
11/ GBTC was pledged to Gemini Earn and Gemini foreclosed on 11/16.
If GBTC rises in price, Gemini Earn creditors capture the upside. If GBTC drops, Genesis is not responsible for the losses.
Creditors now net long GBTC to the tune of $354 MM+
If GBTC rises in price, Gemini Earn creditors capture the upside. If GBTC drops, Genesis is not responsible for the losses.
Creditors now net long GBTC to the tune of $354 MM+
12/ Gemini will pay $100 MM to Gemini Earn in exchange for a full release (pro-rata so max payout is $100 MM).
If, say, 75% of creditors accept the plan the the Gemini kicker is $75 MM.
If, say, 75% of creditors accept the plan the the Gemini kicker is $75 MM.
13/ There are limits on ability to sell claims - if creditors accept the Plan. Ex: Cannot sell to a non-creditor unless they also agree to the same terms (including releases).
That's a good move to limit liability and keep the claims from opening up a legal threat vector.
That's a good move to limit liability and keep the claims from opening up a legal threat vector.
14/ DCG will contribute the entire value of the Genesis Trading business to Genesis creditors.
Note: I am skeptical this business is worth much. Also the giveaway saves DCG money. But there is embedded option value - and trading and lending businesses go hand in hand. We'll see.
Note: I am skeptical this business is worth much. Also the giveaway saves DCG money. But there is embedded option value - and trading and lending businesses go hand in hand. We'll see.
15/ DCG has tight financial covenants: cannot pay dividends to equity holders and has limits on taking out new debt. But there is no limit to mgmt compensation.
By my math, much of the cashflow from Grayscale (at current BTC prices) will go back to pay creditors over years
By my math, much of the cashflow from Grayscale (at current BTC prices) will go back to pay creditors over years
16/ So DCG will be facing pain for several years. DCG will continue to cut costs, seek a sale of various assets, and sale of digital assets held on balance sheet.
I expect DCG will keep its crown jewel Grayscale.
I expect DCG will keep its crown jewel Grayscale.
17/ Why would DCG accept this deal?
- Forebearance. DCG owes $600 MM in 3 months. And DCG already pledged aways its GBTC to Gemini Earn. That's a lot of cash - do they have it?
- Alignment. Lawsuits will go away. Temperature drops. Creditors that accept will root for DCG.
- Forebearance. DCG owes $600 MM in 3 months. And DCG already pledged aways its GBTC to Gemini Earn. That's a lot of cash - do they have it?
- Alignment. Lawsuits will go away. Temperature drops. Creditors that accept will root for DCG.
18/ Solvency. The restructuring of the $1.1 Bn Promissory Note into a lower face value of $575 MM improves DCG's net equity position.
Otherwise, those massive looming liabilities could hurt a DCG IPO.
Otherwise, those massive looming liabilities could hurt a DCG IPO.
19/ Not financial advice, nor legal advice. This is my first pass. I undoubtedly made mistakes or missed key elements.
I will host a Twitterspace Sunday at 11am ET to go thru questions. Note your big questions in this thread below so I have time process.
I will host a Twitterspace Sunday at 11am ET to go thru questions. Note your big questions in this thread below so I have time process.
20/ Self-Plug. @LumidaWealth published its 2023 Outlook.
We comb thru decades of financial history to share our best non-consensus views.
Email info@lumida.co for a copy subject line 'subscribe Outlook'.
Here is the webinar which rec'd rave reviews:
We comb thru decades of financial history to share our best non-consensus views.
Email info@lumida.co for a copy subject line 'subscribe Outlook'.
Here is the webinar which rec'd rave reviews:
Note: Whether DCG can IPO in two years is questionable.
Bitcoin needs to recover (halving in 2024), the SEC whom its subsidiary is suing needs to approve the S-1, the DOJ investigation must resolve, and creditor litigation must be resolved.
Also the status of Grayscale’s… twitter.com/i/web/status/1624496127285370885
Bitcoin needs to recover (halving in 2024), the SEC whom its subsidiary is suing needs to approve the S-1, the DOJ investigation must resolve, and creditor litigation must be resolved.
Also the status of Grayscale’s… twitter.com/i/web/status/1624496127285370885
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Lyle Pratt @lylepratt
·
Feb 11, 2023
great summary thread