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Crypto bankruptcy: Voyager restructuring hinges on uncertain revival

Cryptocurrency brokerage and lender Voyager Digital has filed for Chapter 11 bankruptcy in a New York federal court. Voyager, whose shares are listed in Toronto, is among a number of digital currency players to halt withdrawals from crypto savings accounts. These offered high yields to depositors — 12 per cent annually in the case of Voyager.

Deposits were loaned out to risky ventures. In the case of Voyager its central problem was a $654mn loan to the hedge fund Three Arrows. Three Arrows was exposed to the Terra/Luna coin blow-up. It filed for bankruptcy last week and is in the process of being liquidated.

For now, no liquidation is in the works for Voyager. It plans to reorganise into a new listed company. Current account holders will get equity in Voyager 2.0, along with an allocation of coins, Voyager tokens and whatever can be clawed from the Three Arrows estate.*

Bank depositors typically just want their money back. But depositors who believe they are entitled to earn 12 per cent in a low interest rate world should realise they are taking equity risk whether they like it or not.

In court filings, Voyager said it tried unsuccessfully to raise additional rescue financing or sell itself. A $75mn loan from crypto tycoon Sam Bankman-Fried was too little, too late.

The company also said that it made $5bn of loans to nine different counterparties. As for its current financial condition, Voyager claims to have $1.3bn of crypto assets remaining on its platform plus $350mn in customer cash held at a bank.

Both the company and its advisers are trying hard to project an image of control and order over what is otherwise a shocking collapse. It is unclear whether Voyager account holders will want to drag out the restructuring process or accept the company’s plan. First, they must decide whether it is worth the effort to fight for a new version of Voyager.

*This article has been amended to note that Voyager account holders are not entitled to cash in the proposed restructuring

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.

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