Author: jk
Since FTX was taken over by the bankruptcy liquidation team earlier this year, FTX has been taking a series of measures to handle its bankruptcy reorganization process, including selling assets and formulating a restructuring plan, aiming to recover as much funds as possible for creditors and stabilize its business operations.
Within a week, FTX Exchange has made two important advances in its complex bankruptcy proceedings.
On December 7th, local time in the United States, the FTX Unsecured Creditors Official Committee disclosed a response letter, which was sent to the FTX 2.0 Customer Special Committee on December 4th. The Official Committee pointed out in the letter that the proposed restructuring plan has achieved an appropriate balance in balancing the competing interests of stakeholders and maintaining the interests of all unsecured creditors. It is expected that the revised restructuring plan and disclosure statement will be submitted to the bankruptcy court in mid-December to provide more details.
At the same time, the Official Committee is also evaluating reasonable alternative solutions to improve the terms of the plan and is discussing potential acquisitions, capital restructuring, or other transactions. Although the Official Committee is currently restricted by confidentiality obligations and cannot disclose details, many concepts, including equity tokens involving debt recovery, have been considered. The Official Committee also expressed its willingness to continue working with the FTX 2.0 Customer Special Committee in the coming months to jointly complete these bankruptcy cases.
On the other hand, on November 30th, FTX also obtained approval from the bankruptcy court to begin selling its shares in the digital trust managed by Grayscale. This is part of FTX's plan to raise funds to repay billions of dollars in debt. According to court documents, FTX plans to sell these assets in a way that maximizes value while minimizing disruption to the digital investment market.
FTX's investment in Grayscale covers various digital currencies, and the buyers do not directly hold the actual currencies but instead acquire shares in the trust established and managed by Grayscale. According to FTX's statement in the court documents, the value of its holdings in the trust shares was approximately $744 million last month.
So how exactly is FTX handling these assets? What steps are involved in transforming shares in Grayscale into creditors' rights? In other words, how does FTX realize debt repayment? Odaily Star Daily found detailed steps in the court documents.
Steps disclosed in court documents
According to the submitted court documents, FTX Trading Ltd. and its related debtors and debt holders are implementing a series of procedures to sell or transfer the trust assets they hold. The goal of these procedures is to effectively manage the trust assets while ensuring that their value is maximized and the proceeds are distributed to creditors in a fair and appropriate manner.
The court documents state that the debtors are authorized, but not directed, to sell the trust assets in accordance with their reasonable business judgment, following the following sales procedures:
Selection of investment advisor: FTX will market and sell the trust assets through an investment advisor approved by the court. This means that FTX will enter into an investment services agreement with the advisor, who will be responsible for handling all matters related to the sale of the trust assets.
Establishment of a pricing committee: FTX will establish a pricing committee consisting of its representatives, committee representatives, and special committee representatives. This committee is responsible for coordinating with the investment advisor, reviewing, and determining the pricing and sales strategy for the assets.
Pricing restrictions: The sale of certain trust assets will be subject to pricing and sales restrictions. These restrictions will be specifically outlined in the investment services agreement and agreed upon in writing in advance by FTX, the investment advisor, the committee, and the special committee. In other words, this ensures that the assets are not arbitrarily priced, thereby avoiding significant discrepancies between market value and pricing value.
Sales methods: FTX will sell the trust assets through over-the-counter (OTC) transactions or through exchanges via the investment advisor.
Reporting requirements: All sales of trust assets will be recorded and included in reports submitted monthly to FTX, the committee, and the special committee.
Prohibition of related-party transactions: The investment advisor may not select any affiliated party as a counterparty for the trust asset transactions.
Bidding requirements: For over-the-counter sales, the investment advisor must obtain at least two quotes from different counterparties before executing any such sales.
Sales execution: FTX may sell the trust assets to one or more buyers in one or more transactions through the investment advisor.
Brokered transaction execution: All sales of trust assets shall be conducted through or with a registered securities broker or other unregistered persons.
Who might the related parties be?
According to a report by Coindesk in August of this year, this "investment advisor," which plays the role of a traditional investment bank in this event, is likely to be Galaxy.
According to a court document mentioned in August: "Galaxy Asset Management has extensive experience in digital asset management and trading, including experience related to the proposed transaction type and investment objectives." This refers to the asset management company of Galaxy, founded by Mike Novogratz, which is an investment advisor approved by the U.S. Securities and Exchange Commission.
And the more well-known part of Galaxy Digital, another part of the company, announced its involvement with FTX in the bankruptcy, detailing procedures to ensure that the asset manager acts in the best interests of FTX. If Galaxy is indeed the investment advisor for the sale of Grayscale assets, then according to the above terms, Galaxy Digital cannot participate in the sale of Grayscale assets as a counterparty.
New developments reveal more details about the asset sale process. For example, reports stated that "FTX/Alameda related addresses transferred $2.8 million GMT to Wintermute," and "FTX/Alameda addresses transferred 17,100 SOL to Wintermute." These transactions indicate that market makers like Wintermute may have acted as counterparties or broker-dealers in FTX's asset sales process.
It can be seen that the sales steps outlined in the documents are highly professional. The setting of the investment advisor and non-mandatory guidance allows them to make decisions that are most favorable to the creditors based on market conditions and the characteristics of the assets. This approach speeds up the decision-making process, improves the efficiency of sales, and ensures transparency and traceability in the process.
However, it also brings challenges in risk management: there may be conflicts of interest, requiring additional supervision and control mechanisms to ensure that the decisions of several committees are in the best interests of creditors and other stakeholders.
Overall, this approach provides flexibility and efficiency, but also requires appropriate regulatory and transparency mechanisms to maintain the fairness and efficiency of the entire sales process.
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