Author | Qin Xiaofeng
Editor | Hao Fangzhou
Produced by | Odaily Planet Daily
When a crypto company files for bankruptcy protection, creditors can only wait passively after submitting the Proof of Claim Form (Official Form 410) to get their assets back. However, bankruptcy cases are often complicated and lengthy, and claims are prioritized, which ultimately leads to ordinary creditors waiting for years.
For users who have experienced the bankruptcy and liquidation of BlockFi, Celsius, Voyager and FTX, if they do not want to sit and wait for death and try to get out of the financial difficulties as soon as possible, selling the debts of the bankrupt companies is an effective way to save themselves (cut losses).
From the perspective of practical exploration, the development of debt trading in the past 40 years has been mature enough, the volume has continued to grow, and there are many safeguards at the legal level. Specifically, for the crypto companies that filed for bankruptcy this year, their debts have also attracted the interest of some hedge funds and large companies.
Recently, Odaily Planet Daily noticed two crypto debt trading platforms that focus on providing services to small creditors who do not have the resources to conduct over-the-counter debt transactions. They are: Claims Market under Cherokee Acquisition, a distressed asset investment company, and Xclaim Inc, a crypto-native debt trading platform. After actual experience, we believe that selling bankruptcy claims may be the best way for creditors to obtain immediate cash liquidity.
1. Claims Market: Simplify the process and save legal fees
Cherokee Acquisition is an investment banking firm that specializes in bankruptcy claims, seller put options, and accounts receivable financing. Claims Market (click to jump) is a platform under the company that is committed to simplifying the claims trading market. It is mainly divided into two parts: one is the over-the-counter market, where buyers and sellers can negotiate prices and terms bilaterally, which is suitable for very large and complex debts; the other is a web-based hybrid market, where buyers can view the seller's claims sales through the market portal, which is suitable for general debts.
The specific operations are as follows:
Sellers need to sign a Seller Agreement and a Simple Claim Assignment Agreement (SAC, which will be introduced later) and list their claims on Claims Market within ten working days while maintaining exclusive sales (exclusivity). Sellers can also view quotes from other sellers on the platform.
Buyers need to sign a buyer agreement before they can browse the claims listed by different sellers on Claims Market and choose the appropriate one to make an offer or bid.
Once the transaction is confirmed by the market, the SAC signed by the seller and all evidence will be sent to the buyer to confirm ownership; if the buyer does not pay the funds within two business days of the transaction date, the transaction is canceled and the claim re-enters the market for other buyers to trade.
It should be noted that during the debt transaction process, buyers are required to pay a management fee to the platform, which is usually 1% of the face value of the debt. In addition, considering fairness, affiliated companies of Claims Market can only bid five days after the debt is listed.
(Celsius claims listed on Claims Market)
Take the above picture as an example. The Celsius debt seller is in South Africa, with a minimum debt denomination of $7,762,290. Now the discount is 23%. Buyers only need to pay $1,785,326 (need to be paid in USDC), and an additional $70,000 management fee. If the buyer thinks the price is right, click "FIRM BID AT Purchase Rate" to agree to the price required by the seller, and transfer the money within the next two working days to complete the operation; you can also click "FIRM BID AT LOWER RATE" to make your own offer and wait for the seller to agree.
According to officials, Claims Market has two significant advantages: First, it simplifies the process by helping sellers upload all relevant documents to the website, simplifying the process of buying and selling claims; second, by providing "simple claims" that are fair to both buyers and sellers. Transfer Agreement" (SAC) to help users save legal fees.
A Simple Claim Assignment Agreement is a legal document developed by Cherokee Acquisition based on bankruptcy claim market standards that balances the interests of sellers and buyers. SACs provide buyers with the legal assurances they need and the right to pro rata repayment if the final claim is less than the minimum claim amount; SACs also give sellers the right to receive additional payments from buyers if the final claim amount is greater than the minimum claim amount.
For example, the minimum face value of the claims listed by the seller now is US$7 million. If the buyer ultimately receives more money from the bankruptcy court than this amount after purchasing the claims, the buyer will need to pay an additional sum of money to the seller. If the money received from the bankruptcy court is less than this amount, the seller will need to return part of the funds.
In addition, Claims Market has developed a "Simple Pass-Through Transfer" (SPTA) to facilitate secondary transactions of claims. In simple terms, if user A lists a claim and makes a legal guarantee, user B does not need to make additional legal explanations when purchasing and reselling it to C. The legal explanation made by A can be passed on, and B does not have to bear legal responsibility for the claim he resold.
(There are only two Celsius credit orders)
Although Cherokee Acquisition officially stated that there are currently about $1 billion in FTX claims and about $100 million in Celsius claims for sale on the Claims Market, Odaily Planet Daily found that only 5 pending orders were found, including $8 million worth of Celsius claims, $810,000 worth of FTX claims, and $10 worth of Voyager claims.
2. Xclaim Inc.: More types of claims and more in number
Unlike Claims Market, Xclaim Inc. (click to jump) is a trading platform that focuses on the transfer of corporate claims in cryptocurrencies. Users can exchange bankrupt corporate claims for US dollars or cryptocurrencies. Its operation process is basically the same as that of Claims Market: users provide basic information to register, sellers list claims on the platform, and buyers select suitable ones to purchase.
(Xclaim Inc. operation flow chart)
One difference is that compared to Claims Market, Xclaim Inc.'s registration review is more stringent. The official will independently verify each capital provider, and the review time is longer. At least I spent a day and still failed to pass the registration. In addition, Xclaim Inc. promises not to use its own account to purchase debt claims, thereby avoiding the platform's malicious suppression of debt prices.
In terms of fees, Xclaim Inc. charges both buyers and sellers. The fees are divided into two levels: (1) For the first transaction of claims (primary transaction), 1% of the face value of the claims is charged, which is paid by the buyer; if the purchase price is less than 10% of the face value of the claims, 10% of the purchase price is directly charged as commission. (2) For the second transaction of claims, 0.5% of the face value of the claims is charged, and the buyer and seller share the fee equally; when the purchase price is less than 10% of the claim amount, 10% of the purchase price is charged as commission, which is also shared equally by the buyer and seller.
When a creditor completes a transaction with Xclaim Inc., the platform submits all necessary documents to the court, and “through integration with the bankruptcy court and the claims agent, we will notify the court to complete all administrative work to update the claims register.”
Currently, Xclaim Inc. has launched debt transactions for four crypto companies, with the following debt sizes: FTX 65 debts worth US$79 million; BlockFi 22 debts worth US$25 million; Celsius 9069 debts worth US$1 billion; Voyager 93 debts worth US$5 million.
After the user selects a column and clicks in, he can filter the pending orders according to his target amount. For example, we choose a claim in FTX, the details of which are shown in the figure below: the face value of the claim is 1 BTC (US$17,460). The user can choose to click to view the various legal documents and supporting materials submitted by the seller, or entrust the platform to conduct additional due diligence; if you are satisfied, you can enter your ideal offer on the right (as a percentage of the face value, for example 20%); after the seller receives the buyer's offer, he selects the appropriate one for the final transaction.
According to statistics from Xclaim Inc., the current debt investment valuations (percentage of debt face value) of the major crypto companies are: FTX up to 13.5%; Celsius up to 19%; Voyager up to 41%; BlockFi has not yet announced.
It is important to note that the valuation of debt will change over time and with the developments related to the bankrupt company. For example, FTX’s debt was only 5% at the beginning, but as more FTX assets were exposed and SBF was extradited to the United States, the debt valuation increased.
3. Summary: Advantages of the debt trading platform
Selling bankruptcy claims may be the best way for creditors to obtain immediate cash liquidity. For ordinary creditors who lack resources, third-party independent debt trading platforms have reduced a lot of trouble for debt trading.
First, pricing is more transparent and fair. It may be difficult to find a suitable buyer on your own, and even if you negotiate the price, it will take a lot of effort; on the debt trading platform, your debt orders will be seen by more people, and the transparency of the market also encourages buyers to compete with each other and push up prices, which helps debt sellers who have encountered bankruptcy liquidation to recover.
Furthermore, the legal process is simpler. If it is an over-the-counter debt transaction, the seller and the buyer need to negotiate the legal terms; while the debt trading platform prepares mature legal documents for users that benefit both parties; even if the user needs to make changes, he only needs to pay attention to the content of the changes, and the debt transfer process will also receive legal assistance from the platform. All of this will minimize negotiation time and money.
Secondly, fast transactions eliminate the risk of collection. Imagine, as an ordinary creditor with low priority, how much money can you get back when the court finally distributes the remaining funds? This process is uncertain. Once the liquidation is completed, the debt in your hands will be worthless. Now through the debt trading platform, buyers and sellers can complete the debt transfer in a short time, and the seller only needs to wait two working days to get the funds.
Finally, for some non-performing asset investors, they can also earn a certain price difference through the debt transfer platform. Basically all platforms currently support secondary resale of debt, so there is no need to worry about liquidity issues. You only need to pay attention to the latest developments of the target company and find the right time to make a move.
Bloomberg reported that firms including Baupost Group and Oaktree Capital are seeking to act as brokers for FTX debt, while firms including Citigroup Inc., Cowen Inc. and Seaport Global Holdings LLC are trying to act as middlemen in the emerging market.
Today, hedge funds and distressed debt investors are betting on debt assets. Compared with ordinary people, these professional institutions have the money and time to wait for bankruptcy liquidation. Court documents show that fund management companies including Contrarian Capital Management LLC, Invictus Global Management and digital asset investment company NovaWulf Digital Management have purchased debts from Celsius or Voyager creditors.
