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FTX creditors expect unexpected cash inflows exceeding 100% of claims

This development may be the result of a successful restructuring and a surprising increase in FTX’s asset value, exceeding creditors’ expectations.

Date: 2024-05-08 Author: Łukasz Michałek
FTX creditors expect unexpected cash inflows exceeding 100% of claims

The new reorganization plan filed Tuesday night proposes that almost all FTX account holders will receive full payment of their claims. They may even receive additional cash on top of that amount.

This windfall is possible because FTX said it has recovered billions of dollars more than originally expected to cover customer losses caused by the November 2022 collapse.

FTX revealed that it had raised about $15 billion, mainly from the sale of venture capital investments made by the exchange and its affiliate Alameda Research. This amount will be enough to fully repay almost all creditors with claims of up to $50,000 (representing 98% of creditors). Other creditors will also receive a substantial recovery, with a minimum repayment of 118% of their claims. However, the proposed plan to reorganize the defunct exchange goes beyond simply repaying creditors.

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The filing shows that it also includes potential additional compensation that takes into account the value of money lost over time since FTX’s bankruptcy. This means that customers will not only get their money back, but may also receive interest.

Justice for FTX victims?

This payout to more than 2 million customers is rare in typical U.S. bankruptcy cases, where creditors often receive only a fraction of what they lost. Some creditors, depending on the type of claim, can receive a refund of up to 142%, meaning they will recover more than they originally lost.

FTX’s payout plan is much better than initial expectations. As recently as October, the company predicted that only 90% of customer funds would be returned. The outlook improved in January, when CEO John Ray III told the court that he expected full repayment to customers.

The documents show that FTX will have a substantial cash surplus($16.3 billion) after the sale of all its assets. This is more than enough to cover its obligations to customers and other non-governmental lenders(about $11.2 billion).

“The debtors and their stakeholders have had time to explore strategic options and opportunities to gradually monetize illiquid and volatile investments over time,” the filing said.

FTX aggressively sold off its assets to raise the funds needed to repay creditors.

This includes investments made by both FTX and its affiliate, such as an 8% stake in AI startup Anthropic. Those shares were sold to institutional investors for a total of $884 million in March.

The proposed distribution plan will still depend on formal approval from the Delaware Bankruptcy Court. Even if approved, distributions to creditors and account holders will likely be several months away as FTX goes through the final stages of bankruptcy proceedings.

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Łukasz Michałek
Łukasz Michałek
Founder of the rapidly developing cryptocurrency channel "Biblia Kryptowalut" on YouTube. He also co-creates the Arena Trading group with Marek. Łukasz is fascinated and passionate about blockchain technology and cryptocurrencies, which constitute the central element of his activity in the cryptocurrency industry.
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