Claims from customers with assets stuck on FTX following the bankruptcy have begun to attract the biggest names in distressed investing.
During bankruptcy, customers with frozen assets often face a long, uncertain process trying to recover them. Rather than wait for resolution, many sell their claims on the property at a discount to distressed investors.
In FTX’s case, these now include companies such as hedge fund Baupost Group and asset manager Oaktree Capital Management. Meanwhile, Citigroup Inc., Cowen Inc., Seaport Global Holdings LLC, and Jefferies Financial Group Inc. Expect to act as a mediator. “Many of the major participants in the distressed debt market are focused on this,” said Joe Famenia, Jefferies’ global head of distressed and special situations.
issues with ftx
FTX stands apart among crypto bankruptcies so far in that its claims are large enough to attract traditional distress investors. The top 50 claims alone have a face value of $20 million. Yet the case also presents some unique challenges that could set some new precedents in crypto bankruptcies. For example, it is still unclear whether the value of claims on crypto assets will be fixed at the time of bankruptcy or will continue to fluctuate.
The case of FTX confronts another problem in terms of valuation. The company’s new leadership managed to acquire $1 billion in digital assets and $1.2 billion in cash, while liabilities were estimated at up to $10 billion. However, Chief Executive Officer John Ray III commented that the absence of any “reliable financial information” does not make it very clear how much the creditors could possibly recover. “Right now there are a lot of uncertainties about the recovery because you don’t know who you can trust from FTX’s balance sheet,” said Famenia at Jefferies.
Other Recent Acquisitions
In addition to interest from distressed investors in customer claims, other crypto companies have taken interest in acquiring FTX assets. Tron founder Justin Sun confirmed that several associates are investigating assets related to FTX. Just before the bankruptcy announcement, Ripple CEO Brad Garlinghouse expressed interest in buying FTX stake in other companies. However, both have said that the bankruptcy process could complicate their intentions.
Meanwhile, Garlinghouse was able to acquire Binance in hopes of securing FTX’s claims on other companies. The US arm of the world’s largest cryptocurrency exchange successfully bid for the assets of bankrupt crypto lender Voyager Digital. FTX had won a previous auction for the asset, which Voyager had terminated following the bankruptcy of the exchange.
BeInCrypto has reached out to the company or the person involved in the story for an official statement regarding the recent development, but has yet to hear back.