(Bloomberg) — Cryptocurrency exchange FTX has raised billions of dollars more than it needs to cover what its customers lost in its November 2022 collapse, setting them up to receive full recoveries , plus interest, a rare outcome in U.S. bankruptcy proceedings.
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Lower-ranking creditors typically receive just pennies on the dollar for their holdings, but FTX has benefited from a strong rally in cryptocurrencies, including Solana, a token heavily backed by convicted fraudster and FTX founder Sam Bankman- Fried. The company also sold dozens of other assets, including various venture capital projects, such as a stake in artificial intelligence company Anthropic.
“In any bankruptcy, this is just an incredible outcome,” said John Ray, CEO of FTX, who took over the company when it collapsed.
Once the sale of all its assets is complete, FTX will have $16.3 billion in cash to distribute, according to a company statement. It owes about $11 billion to its customers and other non-governmental creditors.
There have only been a handful of major U.S. corporate bankruptcies that have seen creditors get all their money back in recent times. In 2021, car rental company Hertz emerged from bankruptcy with money remaining to repay shareholders, following a sharp rise in used car prices. In 2013, American Airlines Group Inc.’s parent company also emerged from bankruptcy with a plan to distribute a distribution to shareholders and fully repay unsecured creditors.
The latest figures underline the surprising result of FTX, whose collapse has been compared to the fall of Enron Corp. fueled by fraud and the collapse of Bernie Madoff’s Ponzi scheme. Earlier this year, the company had about $6.4 billion in cash.
Although all debts are paid in full, plus interest, nothing will be left for shareholders, according to court documents filed Tuesday evening in federal court in Wilmington, Delaware, where the FTX case is being handled.
FTX’s largest shareholders include Sequoia Capital, Thoma Bravo, Singapore’s Temasek Holdings Pte and the Ontario Teachers’ Pension Plan, according to a court filing last year. People including Tom Brady and Gisele Bündchen also own common stock.
Great recoveries
The company, now run by restructuring advisers, also proposed creating a fund to pay certain creditors, including those who lent the FTX crypto, with money that otherwise would have gone to government regulators. They also tracked the company’s assets and unraveled a web of accounts scattered around the world.
These rallies have been significantly shaken by the crypto rebound, which has caused the price of Bitcoin to quadruple since the end of 2022.
Depending on the type of debt they have on file, some creditors could recover up to 142% of what they are owed. However, the vast majority of customers will likely get 118% of what they had on the FTX platform the day the company entered Chapter 11 bankruptcy. Payments will likely be expected in several months as FTX moves through the final stages of the bankruptcy case.
Yet the prospect of such huge victories drives up the price of creditors’ claims. Some of them are now trading at more than 100% of their face value, according to two people familiar with the matter. Many of these claims were trading at as little as three cents on the dollar immediately after the bankruptcy.
Cash Distribution
In a document filed Tuesday, restructuring advisers outlined new details of their proposal to distribute money to creditors and end the Chapter 11 case. Known as an information statement, the document is designed to help creditors vote on the proposed repayment plan.
U.S. Bankruptcy Judge John Dorsey will take that vote into consideration when deciding whether to approve the plan later this summer. Dorsey is expected to hold a hearing in late June on the disclosure statement and voting procedures.
FTX filed for bankruptcy in November 2022 after Bankman-Fried shut down the company’s crypto trading platform and handed control of it to insolvency experts. Bankman-Fried was later convicted of fraud.
The case is FTX Trading Ltd., 22-11068, U.S. Bankruptcy Court for the District of Delaware.
–With the help of Lucca de Paoli.
(Adds additional details on creditors and shareholders.)
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