Genesis liquidation could force DCG bankruptcy

Haseeb Qureshi, the Managing Partner at Dragonfly Capital, discussed the potential consequences of Genesis going into liquidation on a recent episode of Unchained’s “The Chopping Block.”

1/ On a recent episode of Unchained’s The Chopping Block, @hosseeb makes a surprising comment about the $1.1 billion DCG-Genesis promissory note.

He says the 10 year note may have been structured as “callable” in the event of a Genesis liquidation.

Here’s what that would mean:

— Ryan Selkis 🥷 (@twobitidiot) December 11, 2022

Discussed on the Dec. 3 episode of Unchained’s ‘The Chopping Block,’ Qureshi said:

“It looks like there was a lot of funny busy in the accounting at genesis very very high level”

According to Qureshi, the Digital Currency Group’s (DCG) $1.1 billion promissory note to Genesis could be “callable” in the event of liquidation, requiring DCG to pay the total value of the note immediately.

Qureshi also discussed DCG’s buy-out of Genesis’s “bad debt” in Three Arrows Capital (3AC), reported to be around $2.1 billion.

However, Qureshi noted that:

“DCG does not have $2.1B in cash to pay the value of the promissory note”

3/ It would also do two other things:

+ significantly reduce DCG’s ability to limit liability from a Genesis bankruptcy. a callable promissory note would basically be a “you break it, you buy it” situation
+ reduce Genesis’s urgency to file bankruptcy as they “have the assets”

— Ryan Selkis 🥷 (@twobitidiot) December 11, 2022

Qureshi discussed two potential scenarios in the event of Genesis going into liquidation.

The first scenario is that “Genesis files [for bankruptcy] and then pulls DCG into bankruptcy,” entering a complex bankruptcy procedure.

The second scenario is that “Genesis goes under, and then the note is itself auctioned off at a value less than par,” but somehow, DCG is prevented from going under.

Qureshi concluded by explaining that “it looks very, very likely” that genesis will have to file for bankruptcy or go through a restructuring where creditors would have to agree to reduce claims at Genesis to avoid bankruptcy.

“The bankruptcy would be so deleterious to creditors to Genesis”

Robert Leshner, founder of Compound and creditor to Genesis, discussed Genesis being pushed into bankruptcy involuntarily.

Leshner highlighted the potential consequences and implications of such a scenario and detailed his expectations of Genesis filing for bankruptcy:

“Any number of creditors could push them into bankruptcy […] I think the odds are high, like 80 percent”