July 24, 2022 – The Debtors, who filed a bidding procedures motion on July 21st, have responded emphatically to press releases issued by (i) FTX Trading Ltd. ("FTX"), owner and operator of FTX.com and (ii) KaJ Labs [Docket Nos. 137 and 136, respectively].
The press releases and the Debtors' responses will deepen a sense that the intersection of traditional Chapter 11 structures (eg a section 363 asset sale process) and the collapse of certain corners of the cryptocurrency universe will continue to be a boundary-challenging, Musk-esque minefield for bankruptcy courts and judges; used as much by participants as a messaging/comminications tool to reach (and manipulate) stunned cryptocurrency investors as a legitimate effort to use the bankruptcy courts for an orderly restructuring or liquidation.
Writing on behalf of the Debtors, counsel Kirkland & Ellis ("Kirkland") assail the offer of FTX (controlled by Sam Bankman-Fried's Alameda Ventures Ltd.) as both a "clear and intentional subversion of the bankruptcy process" and "nothing more than a liquidation of cryptocurrency on a basis that advantages AlamedaFTX. It’s a low-ball bid dressed up as a white knight rescue…."
In emotive language, the Debtors take aim at every element of the FTX proposal; insinuating that it may create tax liabilities for customers compelled to dollarize their coin, that their cash deposits (in respect of which Voyager is looking for a Court-authorized mecahnism to return) may be at risk and insisting that the "stand-alone Plan that Voyager filed is capable of delivering far more value to customers than the AlamedaFTX proposal—which transfers significant value to AlamedaFTX, and completely eliminates the value of assets that are of no interest to AlamedaFTX."
FTX's offer, the Debtors argue, is a forced liquidation of cryptocurrency…and only cryptocurrency (providing creditors with no value in respect of Voyager IP, the Voyager platform, Voyager's VGX token, or Voyagers' @$650.0mn claim against Three Arrows Capital); an offer made egregiously unfair by the fact that the coin is to be valued at July 5 (ie Petition date) prices. Leaving Bankman-Fried and Alameda with whatever upside exists in a recovering cryptocurrency market after what was an 80% collapse in respect of major cryptocurrencies [NB: Kirkland rejects FTX's contention that Voyager's Plan has capped customer claims at July 5th prices: "Voyager’s proposed stand-alone plan is clear that customer claims are not 'capped'.”].
In claims that are arguably both hypocritical and correct, the Debtors' note as to FTX's press release : "AlamedaFTX’s Proposal, which was made in contravention of the proposed Bidding Procedures, was designed to generate publicity for itself rather than value for Voyager’s customers….By making its Proposal publicly in a press release laden with misleading or outright false claims, AlamedaFTX violated many obligations to the Debtors and the Bankruptcy Court. Voyager reserves all rights and remedies against AlamedaFTX for its clear and intentional subversion of the bankruptcy process and the damages that may be suffered by customers and other creditors as a result."
The response also makes clear that speculation as to a "sweetheart transaction" between the Debtors and FTV/Alameda could not be "further from the truth:"… "many third parties have speculated that AlamedaFTX—because of its various relationships with Voyager, including as creditor, lender, and equity holder—had an 'inside track' to acquire Voyager on some type of sweetheart transaction terms. Nothing could be further from the truth as evidenced by this response. Voyager’s process will not be obstructed by anyone, including Alameda/FTX."
The Voyager Response to FTX (see also our separate coverage of the FTX press release)
The Debtors' FTX response provides: "The day after Voyager filed its Bidding Procedures Motion, one of Voyager’s competitors and largest stakeholders, Alameda Ventures Ltd. and FTX Trading Ltd. (together, 'AlamedaFTX') issued a press release attaching a proposal simultaneously e-mailed to Voyager (the 'Proposal'). AlamedaFTX’s cover letter openly disparaged Voyager, and the statements AlamedaFTX made to the public about its proposal are, at best, highly misleading.
Voyager will entertain any serious proposal made pursuant to the Bidding Procedures described in its Motion. It seems clear, however, that AlamedaFTX’s Proposal, which was made in contravention of the proposed Bidding Procedures, was designed to generate publicity for itself rather than value for Voyager’s customers.
Hopefully customers understand that public dissemination of proposals that subvert a coordinated, confidential, competitive bidding process can have the effect of chilling bidding. AlamedaFTX’s actions are not value maximizing. Nevertheless, since the Proposal is now public, we encourage all of our creditors and customers to read it. Really read it. And understand it with the benefit of the following analysis. The AlamedaFTX proposal is nothing more than a liquidation of cryptocurrency on a basis that advantages AlamedaFTX. It’s a low-ball bid dressed up as a white knight rescue. To anyone who reads the Proposal even in a cursory way, it will be obvious that the stand-alone Plan that Voyager filed is capable of delivering far more value to customers than the AlamedaFTX proposal—which transfers significant value to AlamedaFTX, and completely eliminates the value of assets that are of no interest to AlamedaFTX.
AlamedaFTX essentially proposes a liquidation where FTX serves the role of liquidator. The 'fair value' of Voyager’s cryptocurrency assets and loans is subject to negotiation with AlamedaFTX. The Proposal requires converting customer cryptocurrency claims into U.S. dollars based on prices as of July 5, 2022 and paying cryptocurrency claims in U.S. dollars, with customers bearing the tax consequences associated with dollarizing and liquidating their claims.More specifically, the Proposal contemplates a “two-pronged” transaction structure:
- AlamedaFTX purchases Voyager’s cryptocurrency assets and cryptocurrency loans at 'fair market value,' moves the cryptocurrency into its own account, and moves the cash value of such assets and loans onto FTX’s platform for distribution to customers.
- Customers can elect to open an account with FTX and receive their 'share' of the cash through an FTX account. No customer will be made whole under the Proposal, nor will any cryptocurrency be returned to customers under the Proposal.
The Proposal harms customers (but benefits AlamedaFTX) for many reasons, including:
- First, the way in which the AlamedaFTX Proposal was made chills bidding and undermines efforts to maximize value that are inherent in a competitive process.
- Second, the cover letter attached to the Proposal suggests that AlamedaFTX believes customer claims based on cryptocurrency investments are 'capped' at the U.S. dollar value of those investments on July 5, 2022. Voyager disagrees with the premise of AlamedaFTX’s cover letter, and Voyager’s proposed stand-alone plan is clear that customer claims are not 'capped.'
- Third, the Proposal requires converting and paying cryptocurrency claims in U.S. dollars. But it ignores the tax consequences of the transaction—customers may have to pay capital gains or other tax on distributions, diluting their recovery. By contrast, Voyager’s stand-alone plan, as proposed, does not aim to dollarize customer claims.
- Fourth, the Proposal would effectively eliminate the VGX token, which Voyager believes would destroy in excess of $100 million in value immediately.
- Fifth, the Proposal declares that there is no value in the Voyager platform and intellectual property, but simultaneously requires a downward price adjustment if Voyager chooses to keep it and sell it to a third party, which makes no sense.
- Sixth, the Proposal burdens Voyager (and customers) with both migration and wind- down expenses, while requiring customers to set up an account on the FTX platform.
More generally, the Proposal contemplates customers 'choosing' to receive cash from FTX or retain their claims. But that could create chaos in the process and seriously disadvantage customers who choose not to participate in what Voyager believes a value-weaking proposition. Voyager’s ability to reorganize on its own or to consummate a transaction for the remainder of the company to maximize value for all would be at a minimum, stuck in limbo, and potentially forever sacrificed. This problem is exacerbated by the fact that FTX US does not support the majority of the coins offered on Voyager.
The Proposal also makes several false and misleading assertions.
- First, AlamedaFTX states that it will 'write-off' its $75 million loan in an effort to provide additional recovery to customers. Voyager believes that AlamedaFTX’s loan is already structurally subordinated to customer claims—it is not entitled to a recovery on account of its loan unless customers are paid in full first. Indeed, AlamedaFTX’s publicly stated rationale for providing the $75 million revolver was to protect customers, which is directly contrary to the suggestion in the Proposal that the loan is now somehow pari passu with customer accounts. Accordingly, Voyager’s proposed stand-alone plan provides that AlamedaFTX will not receive any distribution. The $75 million 'write-off' in the Proposal does not increase customer recoveries at all.
- Second, the Proposal states that AlamedaFTX 'is open to including or excluding [FBO cash accounts] from the transaction, as best for customers.' But cash held in the FBO account is not property of Voyager and is instead property of its customers. Voyager filed a motion to honor withdrawals by customers from the FBO account, which will be heard by the Bankruptcy Court on August 4, 2022. If approved by the Bankruptcy Court, Voyager will work with Metropolitan Commercial Bank to allow customers to withdraw their cash from the FBO account as quickly as possible. It is at best unclear how the FBO account would be handled by AlamedaFTX under the Proposal, and addressing that issue would be critical if the Proposal were otherwise viable. But because Voyager has already sought to resolve customer cash in the FBO account, inclusion or exclusion of FBO accounts from the Proposal is irrelevant.
- Finally, AlamedaFTX states that it 'does not ascribe independent value to the Voyager brand or intellectual property.' Voyager strongly disputes this statement, which we do not believe even AlamedaFTX believes. Voyager continues to market a sale of its business to potential strategic investors and will continue working to maximize the value of its business. By insisting that it acquire such assets in the Proposal, but refusing to pay for them, AlamedaFTX proposes to pay a reduced price for Voyager’s business, further reducing any distributions to customers.
AlamedaFTX’s proposal purports to allow customers to be 'long crypto' while receiving cash on account of their claim. But all AlamedaFTX’s proposal actually does is buy customers’ claims at a discount. Again, Voyager has already filed a proposed stand-alone Plan that would reorganize the company, return to customers all of their cash and as much of the cryptocurrency they placed on Voyager’s platform as possible as promptly as possible, and provide customers upside in both the value of reorganized Voyager and any recovery from Three Arrows Capital. And Voyager will consider any serious proposal that is better for customers than the proposed stand-alone Plan as part of the orderly process described in Voyager’s Bidding Procedures Motion.
In the interim, many third parties have speculated that AlamedaFTX—because of its various relationships with Voyager, including as creditor, lender, and equity holder—had an “inside track” to acquire Voyager on some type of sweetheart transaction terms. Nothing could be further from the truth as evidenced by this response. Voyager’s process will not be obstructed by anyone, including Alameda/FTX.
By making its Proposal publicly in a press release laden with misleading or outright false claims, AlamedaFTX violated many obligations to the Debtors and the Bankruptcy Court. Voyager reserves all rights and remedies against AlamedaFTX for its clear and intentional subversion of the bankruptcy process and the damages that may be suffered by customers and other creditors as a result. Voyager will remain steadfast in its restructuring process, continuing to work toward a value-maximizing transaction that is beneficial to Voyager’s customers and stakeholders.
The Voyager Response to KaJ Labs
On July 23rd, Kirkland filed a response [Docket No. 136] to a pair of KaJ Labs' press releases which in turn provided that they had issued a letter of intent (the “LOI”) to purchase certain of the Debtors' assets (July 11th) and then that it had rescinded the purported LOI (July 21st). The Kirkland response provides: "KaJ’s press releases are a complete fabrication.
KaJ has not participated in Voyager’s marketing and sale process. KaJ did not sign a confidentiality agreement and was not given access to any confidential information. KaJ did not submit (and to date still has not submitted) an LOI to Voyager. KaJ did not engage in any conversations with Voyager’s management team or any of Voyager’s advisors regarding deal structure or the closing process and, therefore, the statement regarding “disagreements” about deal structure and the closing process are completely fabricated.
The only communication with KaJ to date are emails from a KaJ principal asking Voyager to publicly acknowledge receipt of an LOI (which, as noted above, would have been false). Voyager responded by inviting KaJ to sign a confidentiality agreement and participate in the process just like every other potential bidder. KaJ ignored Voyager’s invitation. It is unclear what KaJ hopes to gain by the public release of false and misleading statements."
Bidding Procedures Background
As reported previously, on July 21, 2022, the Debtors filed a motion requesting entry of a bidding procedures order, which would: (i) approve bidding procedures in relation to the sale of substantially all of the Debtors’ equity and/or assets (the “Sale”), (ii) authorize the Debtors’ to select a Stalking Horse Bidder, (iii) approve bid protections for a Stalking Horse Bidder and (iv) adopt a proposed timetable culminating in an auction on August 29th and a sale hearing on September 7th [Docket No. 126].
On July 5, 2022, Voyager Digital Holdings, Inc. and two affiliated debtors (Toronto Stock Exchange (TSX); “Voyager” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York," lead case number 22-10943. At filing. the Debtors, who offer crypto-currency brokerage services, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn.
The bidding procedures motion [Docket No. 126] reads, “…before the Petition Date, the Debtors faced a short-term ‘run on the bank’ due to the downturn in the cryptocurrency market and the 3AC default and subsequent liquidation. The Debtors commenced these chapter 11 cases to avail themselves of the benefits afforded under chapter 11, including a breathing spell to focus on ensuring a bright path forward that maximizes the value of their enterprise and for the benefit of all stakeholders.
Before the commencement of these chapter 11 cases, the Debtors and their proposed investment banker, Moelis & Company LLC (‘Moelis’), initiated a comprehensive marketing process to solicit interest in two general deal structures: (a) a Sale of the Debtors’ entire business; and (b) a capital infusion whereby a third party (individually or as part of a consortium) would provide the requisite funds necessary (a ‘Financing,’ and together with a Sale, a ‘Transaction’) to allow the Debtors to weather the current volatility and dislocation in the cryptocurrency industry.
This process, which is described in detail in the Declaration of Jared Dermont Regarding the Debtors’ Marketing Process and in Support of the Debtors’ Chapter 11 Petitions and First Day Motions [Docket No. 16], included an initial outreach to over 60 potential financial and strategic partners globally (‘Potential Counterparties’) — a process that has now continued in earnest post-petition with outreach to 83 Potential Counterparties in the aggregate. These Potential Counterparties are made up of domestic and international strategic cryptocurrency related businesses and private equity and other investment firms that currently have crypto-related investments and/or historical experience investing in the cryptocurrency industry.
By July 21, 2022, over 37 of the Potential Counterparties have entered into confidentiality agreements with the Debtors. Parties who executed a confidentiality agreement received a copy of the Debtors’ investor presentation and access to a virtual data room containing thousands of pages of information regarding the Debtors’ business operations finances, and material contracts. In addition, parties that signed confidentiality agreements were offered the opportunity to participate in telephone conferences with the Debtors’ management team as well as to request additional due diligence information.
Intent on moving expeditiously through the chapter 11 process and to generate positive momentum, the Debtors filed the Joint Plan of Reorganization of Voyager Digital Holdings, Inc. and its Debtor Affiliates Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 17] on the first day of these cases. To ensure the Debtors are maximizing value, the standalone Plan complements the Debtors’ ongoing marketing efforts by setting a floor against which potential Transactions will be measured.
In furtherance of this goal, the Debtors seek to establish formal Bidding Procedures to set the guidelines for a potential Transaction. The Transaction will either be consummated through: (a) a Plan; or (b) a Sale of all or substantially all of the Debtors’ Assets."
About the Debtors
According to the Debtors: “Voyager Digital Ltd. is a fast-growing, publicly traded cryptocurrency platform in the United States founded in 2018 to bring choice, transparency, and cost efficiency to the marketplace. Voyager offers a secure way to trade over 100 different crypto assets using its easy-to-use mobile application, and earn rewards up to 12 percent annually on more than 40 cryptocurrencies. Through its subsidiary Coinify ApS, Voyager provides crypto payment solutions for both consumers and merchants around the globe.”
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