CEFI

Will DCG’s CFO Departure Lead to a $630 Million Default This Week?

share
Will DCG’s CFO Departure Lead to a $630 Million Default This Week?

According to a report by CoinDesk, Michael Kraines, the Chief Financial Officer of Digital Currency Group (DCG), resigned in April. Currently, the financial department is jointly managed by President Mark Murphy and Chief Strategy Officer Simon Koster while they search for a suitable replacement. In a letter to shareholders, DCG mentioned that the company repaid a $350 million senior secured term loan in the first quarter. With the rise in cryptocurrency, DCG reported first-quarter revenue of $180 million, though lower than the same period last year, and an adjusted EBITDA loss of $6 million.

Between May 9th and 11th, DCG needs to pay a total of $630 million in loans. As the deadline approaches, there are reports of FTX claiming $3.9 billion and existing creditors choosing to withdraw from the agreement. Will DCG face a default scenario this week?

FTX Shakes Things Up with $3.9 Billion Claim

The FTX bankruptcy team is attempting to reclaim $3.9 billion in loans that were repaid before FTX went bankrupt, claiming it was done to assist FTX's fraudulent business model.

How did the $3.9 billion come about? For more details, please see: Reorganization Team Alleges Genesis Is the Mastermind Behind FTX Fraud, Demands Nearly $3.9 Billion Back

Creditors Abandon Previous Agreements

Following the collapse of the FTX exchange, Genesis's loan department halted withdrawals in November last year, and Genesis filed for bankruptcy protection earlier this year. In February, a lawyer for Genesis stated that as part of the bankruptcy proceedings, DCG plans to sell Genesis's crypto lending and trading platform.

It was reported last week that creditors have abandoned previous agreements. DCG stated that these creditors have made new demands, which will prolong the court proceedings.

Ram Ahluwalia Sees High Probability of DCG Default

Unchained also invited Ram Ahluwalia, Founder and CEO of Lumida Wealth, to delve into this topic in this episode of the podcast.

According to the discussion in the podcast, DCG has a total of $630 million in loans due between May 9th and 11th, and Ahluwalia explains that there is no possibility of partial payment. As per his understanding, there have been no reports of DCG finding new investors, successfully selling assets, or any news of debt refinancing; hence, the likelihood of DCG defaulting this week is high.

However, Ahluwalia believes that Gemini Earn creditors have likely recovered their investments, thanks to the foresight of Gemini's founders, the Winklevoss twins. In August 2022, Gemini negotiated a security agreement involving $62 million worth of GBTC as collateral. This strategic move, coupled with an additional $100 million in funding provided by Gemini, gives Gemini Earn creditors a better chance of recovering their investments.

Regarding debtors other than Gemini Earn, Ahluwalia suggests that the limited financial information and mismatched information have led to these debtors abandoning previous agreements, making everything more complex. Perhaps it will only become clear how DCG will operate and explain itself when the debts come due.