What Happened?
Earlier this morning Voyager Digital filed for Chapter 11 bankruptcy protection. Due to the collapse of Three Arrow Capital and the huge loan that Voyager provided it would make sense that the company would enter Chapter 11. However, since they had just received a line of credit worth $485 million in mid-June from SBF this pivot does not make as much sense... or does it?
As opposed to the other companies that have halted transactions or entered liquidation Voyager Digital stands apart because it is a publicly-traded stock. This means that it undergoes more intense scrutiny compared to these companies that are private. The scrutiny that the regulators apply is supposed to prevent this very thing from happening however here we are and it managed to happen.
What Caused it?
When looking back at what caused the company to go belly up it is pretty easy to identify and the company has been transparent about what occurred. They lent Three Arrows Capital $675 million and Three Arrows Capital is now in liquidation. This is a huge sum of money (some of it was also in Bitcoin as well) and would cause even the most seasoned company to have to address a huge loss like this. When you throw in how $2 trillion has been wiped off of the crypto market this year it becomes understandable to see the headwinds that the company faced as their lending service like most is struggling right now.
Why Enter Chapter 11?
Entering Chapter 11 can be a key way to save a business and does not mean that the company is going to go away. Over the recent years, several major companies have entered this protection to restructure debts to either adjust the interest rate or extend/forgive the debt they owe to others. Some key examples are General Motors (GM), Delta Airlines, American Airlines, and even Marvel Entertainment! All of these companies bounced back after getting some help and in the case of Marvel went from bankruptcy in 1996 to Disney buying it for $4 billion in 2009!
So Why Would Voyager Choose This Path?
While there are still plenty of details to be released it can be assumed that Voyager chose this due to bad debt and needing time to work things out with different people/companies that either owe them money or they owe money to. Even with SBF $485 million credit line if a "bank run" occurred Voyager would not have enough funds to cover everything that they owed. Having seen this occur before and readying what I have I am of the belief that they (Voyager) had a mixture of bad debt and needed more time to work things out with other companies to bail them out.
Previously when companies entered into bankruptcy certain companies specialize in providing them the money that they need while taking a sizeable chunk of the company over. This is something I would expect to see here and might be what SBF is going to do with his company Alameda Research or possibly bring in a legacy company that works in this space. It gives legacy companies a pretty good company in a whole new space to try it out. With the amount of capital that they have stated that they have and their largest creditor SBF for $75 million, this is not an end-all-be-all situation for Voyager rather it allows them to get their house in order for a bear market.
With how this company is regulated and looking at the numbers that have come out so far I do not think that they are in jeopardy of losing their customers' funds. It seems to me that they are more tied up than anything and that they needed to create an organized process for people to withdraw funds and not cause a run. While far from ideal at least it was not a hack and the company does have a sizeable amount of cash on hand.
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