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Genesis strikes deal with Gemini and other creditors as DCG sells shares in Grayscale trusts

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(Kitco News) - Bankrupt crypto lender Genesis announced late Monday that it had reached an “agreement in principle” between parent company Digital Currency Group (DCG) and their creditors, including Gemini, on the more than $2 billion in money owed.

“Today’s agreement is a positive step forward and provides a clear path to a consensual resolution that maximizes value,” said Paul Aronzon, a member of the Special Committee of Genesis’s board of directors that has been overseeing the restructuring process.

According to the statement released by Genesis, the agreement “lays out a framework for a global resolution that will maximize value for all Genesis clients and stakeholders.”

Under the terms of the agreement, DCG would issue convertible preferred stock as part of Genesis’ Chapter 11 restructuring plan in exchange for its outstanding $1.1 billion note due in 2032. DCG would also refinance its existing 2023 term loans through “a new, junior secured term loan in two tranches made payable to creditors in the aggregate total value of approximately $500 million.”

As part of the restructuring, DCG will also contribute its equity in Genesis Global Trading (GGT) to Genesis Global Holdco, bringing all Genesis entities under the same holding company.

Genesis said “definitive documentation and necessary court approvals” must be completed before the agreement goes into effect. They also intend to launch the sale process for the Genesis Global Trading division “and explore other value-maximizing transactions” while the plan is being finalized.

An update posted by crypto yield platform Donut, a Genesis creditor, claimed the plan “has a recovery rate of approximately $0.80 per dollar deposited, with a path to $1.00” depending on the equity note, the prices Genesis assets receive at auction and other factors.

Gemini, the crypto exchange owned by Cameron and Tyler Winklevoss and one of Genesis’ largest creditors, also agreed to contribute up to $100 million in additional funds to customers who subscribed to their Earn program as part of the plan.

“This plan is a critical step forward towards a substantial recovery of assets for all Genesis creditors,” said Gemini cofounder Cameron Winklevoss in a twitter thread. “There is still much work to be done to complete this process, including further due diligence of Genesis financials and judicial approval of this plan, but we are confident that we now have a framework in place to execute on.”

Genesis filed for bankruptcy on Jan. 19 after months of concern over its degree of exposure to FTX and Alameda and weeks of bitter and public conflict with Gemini, whose customer assets they held.

DCG sells off Grayscale shares

DCG also appears to be laying the groundwork to finance the Genesis restructuring plan, as they have begun selling off shares of their Grayscale cryptocurrency funds at a significant discount, according to a report from the Financial Times.

Grayscale is DCG’s asset management business, and funds like the Grayscale Bitcoin Trust (GBTC) enable investors to effectively hold crypto in their brokerage accounts through the purchase of shares in the trusts, which represent large pools of crypto.

According to SEC filings, DCG has been selling off approximately 25% of their holdings in the Grayscale Ethereum Trust (ETHE) since January 24. The company was selling ETHE at about $8 per share, which represents a 50% discount on the $16 worth of ETH that each share represents, and they hope to raise $22 million for the restructuring.

The company has also sold smaller blocks of shares in Grayscale’s Litecoin Trust, Bitcoin Cash Trust, Ethereum Classic Trust and Digital Large Cap Fund, according to the filings.

“This is simply part of our ongoing portfolio rebalancing,” DCG stated.

At the time of writing, shares in the Grayscale Bitcoin Trust (GBTC) were flat on the session at $11.90 with the discount rate just over 43%, while the Grayscale Ethereum Trust (ETHE) was trading down 0.5% on the session at $7.88, representing a discount of 54%.

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