BlockFi Inc. and eight of its affiliates followed the paths of crypto platforms Voyager, Celsius and FTX by filing for bankruptcy protection. The case, commenced in the District of New Jersey, on November 28, 2022, is off to a fast start. BlockFi filed a plan of reorganization on the first day of its case. The plan proposes a standalone restructuring but allows the company to toggle to a sale of all or substantially all of the company’s assets. The company had its first day hearing in New Jersey on November 29th and expressed an interest in exiting bankruptcy expeditiously.
BlockFi’s financial advisor pointed out in a “first day” declaration that, while the company’s downfall came as a result of FTX contagion, it does “not face the myriad issues apparently facing FTX.” The declaration highlights BlockFi’s efforts to lead the digital assets industry in compliance and transparency in an obvious attempt to distinguishing itself from FTX. BlockFi’s liquidity crisis was, at least in part, due to its exposure to FTX through financing provided by FTX US, loans the company advanced to Alameda, and cryptocurrency held on FTX’s platform. BlockFi was also heavily exposed to Three Arrows Capital, the crypto hedge fund that collapsed earlier this year. Three Arrows was one of the company’s largest borrower clients and its failure led to the FTX rescue financing. Based on testimony of the hearing, it seems that BlockFi had lent approximately $680 million to Alameda and has approximately $355 million frozen at FTX.
In its schedule of largest unsecured creditors, BlockFi listed a $729 million unsecured claim on account of an indenture (although does not mention any bonds in the declaration). It also listed a $250 million unsecured loan from FTX US (which is purportedly subordinated to customer obligations) and an undersecured “institutional loan” in the amount of $21.67 million. The remaining claims were identified as client claims and the customers were not identified.
In conjunction with the US cases, BlockFi International Ltd., a Bermuda company, filed a petition with the Supreme Court of Bermuda for the appointment of joint provisional liquidators. It is fair to expect that a Chapter 15 proceeding will be commenced in New Jersey once the liquidators are appointed.