Shares of cryptocurrency broker Voyager Digital (VOYG) dropped more than 60% after it revealed its exposure to hedge fund Three Arrows Capital (3AC) and warned that it could send the crypto fund a “notice of default” if it didn’t return a loan on time.
The company’s exposure to 3AC comprises 15,250 bitcoins ($370 million) and $350 million USDC, according to a statement released on Wednesday.
According to a Wall Street Journal report, Dubai-based Three Arrows Capital announced on June 17 that it has hired legal and financial experts to help it find a way out after suffering significant losses in the most recent market slump. According to co-founder Kyle Davies of 3AC, who spent more than $200 million in LUNA tokens in February, that money is now basically useless because the Terra ecosystem collapsed in the middle of May. The corporation was said to be in danger of going bankrupt last week after acquiring at least $400 million in liquidations.
Analysts advise caution
Wall Street analysts have become wary of Voyager and are deferring purchases until more information is available.
In a letter to clients on Wednesday, Chris Allen of boutique investment bank Compass Point said, The 3AC exposure poses survival problems for VOYG. It is uncertain if the fund will be able to repay its outstanding loans, and even if it does, we would anticipate that it will take a long time because 3AC is considering asset sales or rescue by another firm. For Voyager’s shares, Allen has a neutral rating and a $6 (C$8) price target.
With the removal of the price target (formerly $11.60, or C$15), BTIG analyst Mark Palmer reduced the firm’s recommendation on Voyager shares from buy to neutral. Palmer wrote in a note to clients that there isn’t enough certainty about how the issue will play out, making it challenging to assess the stock at the moment.
As of 15:11 UTC, the stock was trading at C$0.60 in Toronto.
3AC deadline
Voyager, which agreed to a loan from Alameda Ventures for securing its assets, requested repayment of $25 million USDC by June 24, and then repayment of the entire amount by June 27, 2022. Despite the fact that there are still several days before those deadlines, neither of these amounts has been repaid, according to Voyager.
An event of default will occur if 3AC doesn’t pay back either demanded sum by these deadlines. Voyager plans to pursue recovery from 3AC and is speaking with the company’s legal counsel about the available legal options, said Voyager.
The statement said, the company is unable to estimate at this time the amount it will be able to recover from 3AC.
Alameda’s two-part loan consists of a cash/USDC-based credit facility with a total principal amount of $200 million and a revolving credit facility for 15,000 BTC. The loan will only be used if necessary, according to Voyager.
The company also has approximately $152 million in cash and cryptocurrency on hand, as well as an additional $20 million that can only be used to purchase USDC.
By the time this article was published, Thee Arrows Capital had not responded to requests for comment.
