DCG Creditor Pact Revealed With Plan to Sell Genesis Trading Unit as Part of Bankruptcy

Digital Currency Group (DCG) intends to sell its subsidiary Genesis' crypto trading business as well as its lending arm, which is restructuring through bankruptcy, a Genesis attorney said Monday as the company revealed a pact with creditors.

Cleary Gottlieb attorney Sean O'Neal, representing Genesis, explained the proposed settlement during the status hearing for the crypto lender, which filed for bankruptcy protection last month. Earlier Monday, CoinDesk had reported that DCG and Genesis reached an agreement with a key group of creditors. CoinDesk, like Genesis, is owned by DCG.

The agreement in principle was reached with two groups of ad hoc creditors, DCG and Gemini Trust Co.

Read more: Bankrupt Lender Genesis and Parent DCG Reach Initial Agreement With Main Creditors: Source

"Under the settlement, DCG would contribute that entity, [Genesis Global Trading], to [Genesis Global Holdco] ... that will happen on the effective date," O'Neal said. "In the meantime, during these cases, we will actually be marketing and trying to sell not only the debtors' assets, but also GGT's because they form a nice package, and we believe that by packaging them together, we can maximize the recoveries to the estate."

Other aspects of the proposed deal will see a restructuring of the debt that DCG owes Genesis Holdco, one of the legal entities that filed for Chapter 11 protection. Under the new terms, DCG will issue a second lien term loan facility that will mature in June 2024.

"There will be two tranches ... one will be denominated in U.S. dollars and pay 11.5% interest and tranche two will be denominated in bitcoin, [which will] pay a 5% interest," O'Neal said.

DCG has also agreed to issue a class of convertible preferred stock, O'Neal said, though the finer details of this issuance are still being worked out.

A press release published after the hearing ended said DCG would exchange its existing $1.1 billion promissory note – currently due in 2032 – for this convertible stock.

Gemini co-founder Cameron Winklevoss tweeted about the proposed settlement during the hearing, saying Gemini will itself contribute "up to $100 million more for Earn users as part of the plan."

Gemini partnered with Genesis to offer the Earn yield product until Nov. 16, when Genesis announced its lending business would be halting withdrawals, which then affected Gemini Earn customers' ability to access their funds.

UPDATE (Feb. 6, 2023, 22:15 UTC): Adds additional details.

UPDATE (Feb. 6, 22:28 UTC): Adds Gemini tweet and explains the Earn product.

UPDATE (Feb. 6, 22:50 UTC): Adds Genesis press release.