Genesis failure would land owner with $350mn payout to financier Todd Boehly
The crypto conglomerate Digital Forex Group is attempting to raise money and avoid the bankruptcy of its Genesis broking business in part to prevent the prompt repayment of a mortgage to US financier Todd Boehly's funded residence. Boehly, who just acquired Chelsea Football Club, oversaw a debt increase for DCG through his investment firm Eldridge in November of last year, which included a $600 million loan from Eldridge and several other investors.
After cryptocurrency exchange FTX's implosion last month sent shockwaves through the industry, Genesis already suspended withdrawals at its lending unit, which allowed customers to mortgage their digital tokens for high rates, and hired investment bank Moelis to evaluate its options.
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Those with direct knowledge of DCG's finances have stated that the $350 million still owed on this mortgage would become immediately payable if this wholly-owned subsidiary failed. One of the numerous people mentioned that the senior secured time loan ranks higher than other debt and has specific choice rights, meaning it must be repaid first in any circumstance.
The cascading demands for money show how the collapse of FTX continues to affect the larger crypto industry, as a few significant players like DCG play a vital role in a market that is supposed to be decentralized.
Undoubtedly, DCG is among the industry's most prominent and first investors in cryptocurrency projects and money. The company was founded in 2015 by billionaire investor Barry Silbert and is the owner of assets like financing manager Grayscale and Genesis. As the FT previously reported, a network of intra-firm loans and investments connects the companies.
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After Genesis reduced its operations last month, Silbert told investors that the $350 million Eldridge mortgage was excellent. DCG owes Genesis $1.6 billion in debt, but its loan from Eldridge—made with investors such as Californian asset manager Capital Group, private equity firm Francisco Companions, and investment manager Davidson Kempner Capital Administration—bears favorable terms. Genesis stated last month that it had "no plans to file a chapter shortly."
According to DCG, the link between Genesis and Eldridge "is totally separate from Genesis' restructuring technique and has no influence on any ultimate product at Genesis." DCG is the sole owner of Genesis. Eldridge opted not to comment. Boehly's participation with DCG is only one of several digital assets the US billionaire has invested in. In March, Eldridge invested in Cross River, a fintech and cryptocurrency infrastructure company. Last year, Eldridge also supported Blockchain.com, a cryptocurrency exchange and wallet provider.
According to people familiar with the situation, Eldridge believes that Genesis' stoppage of withdrawals indicates that it cannot pay its debts and is, therefore, in default. The collectors have formed a committee to get their money back.
Last year, investors, including SoftBank, Ribbit Capital, and Alphabet's business unit CapitalG valued DCG at $10 billion.
Since the cryptocurrency crisis broke out, it has been scrambling to raise capital and is looking for money to avoid having to sell any of its portfolio companies, according to the people.
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According to regulatory filings, traders in DCG's debt had reduced their holdings even before the drop in cryptocurrency confidence this November. Capital Group reduced a $1.26 million position of DCG debt by 17% in September. Genesis is owed $575 million in loans by DCG that are due in May 2023. This money was used to finance share buybacks and investments in another of DCG's subsidiaries, asset manager Grayscale.
Additionally, it has a $1.1 billion promissory note that is due in 2032 and was created after DCG took over Genesis' obligations after the collapse of the digital asset hedge fund Three Arrows Capital over the summer.
