Bets on the bankruptcy claims of cryptocurrency exchange FTX are bringing huge profits to hedge fund Diameter Capital Partners, according to a Bloomberg report. The FTX claims acquired by Diameter are already trading above face value, far exceeding the company's own estimates.
Diameter's initial bet was that claims on FTX's assets would be able to sell for 20 cents per dollar (or 20% of the claims' face value), however, quotes for those claims have risen to more than 100 cents per dollar.
Managing partners Scott Goodwin and Jonathan Lewinsohn said in an investor letter this month, a copy of which was seen by Bloomberg, that the deal was the largest contributor to second-quarter profits for Diameter's two main funds and that Still a big part of the company. The company now has more than $400 million in exposure to FTX’s claims, according to the letter and people familiar with the matter.
FTX filed for bankruptcy protection in November 2022. In March this year, a US judge sentenced FTX co-founder Sam Bankman-Fried (SBF) to 25 years in prison for his crimes.
"Bankman-Fried still caused holders to lose all the appreciation in their cryptocurrencies, which were up about 230% by quarter end. So he went to jail while Diameter performed just fine." Goodwin and Lewinsohn wrote: "This is One of the clear win-win situations we've seen."
The acquisition of FTX debt will go down as one of the best distressed debt transactions in history. In the weeks following FTX's collapse, these claims were trading in the single digits, but under a recently announced restructuring plan, FTX customers may receive distributions of 120 cents per dollar, leaving those who were involved in the company's bankruptcy Big wins for buyers who buy into debt early on.
Diameter previously expected that the claims of FTX customers would be settled in US dollars based on the price of the relevant tokens on the day it filed for bankruptcy. However, what the company did not expect was that its originally estimated worthless assets (including those of artificial intelligence startup Anthropic) equity) were realized at high prices during the course of the case. Diameter reportedly continued to buy even as the value of its claims rose.
Related articles: "Bloomberg: Oaktree Capital and other companies hold FTX debt, Attestor's total debt holdings amounted to US$394 million, becoming the largest buyer"
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