(Bloomberg) — The fallout from troubled crypto hedge fund Three Arrows Capital Ltd. has reached Voyager Digital Ltd., sending shares of the crypto exchange down 51% in Toronto trading with analysts raising the prospect of further damage.
Voyager said it may issue a notice of default to Three Arrows for failure to repay a loan, the exchange disclosed in a statement. The broker’s exposure to Three Arrows includes 15,250 Bitcoin and $350 million of stablecoin USDC, worth roughly $660 million based on Bitcoin’s price on Wednesday in New York.
New York-based Voyager, which offers crypto trading, staking — a way of earning rewards for holding certain cryptocurrencies — and yield products, is listed on the Toronto Stock Exchange and its shares are traded over-the-counter in the US. It had about $5.8 billion of assets on its platform as of quarter-end in March.
To meet customer liquidity needs, Voyager has secured credit lines — $200 million in cash and USDC stablecoin plus 15,000 Bitcoin — from the investment arm of Alameda Research LLC. The funding is contingent on Voyager’s ability to secure additional sources of funding within 12 months, among other conditions.
Its Three Arrows exposure “raises survivability questions” for Voyager, analysts at Compass Point Research & Trading LLC wrote in a research report Wednesday. “We would not be surprised to see VOYG customers pulling assets from the platform,” they said, referring to the company’s ticker.
The pace of customer redemptions and Voyager’s ability to recoup loans to Three Arrows will likely determine its ability to continue operations, they wrote.
Meanwhile, analysts at BTIG downgraded Voyager to neutral from a buy, and KBW Research removed its rating on Voyager, saying it was difficult to put a value on the shares given the uncertainty of collecting on its loan.
Voyager did not mention the amount of collateral, if any, held on its loan to Three Arrows and a spokesperson did not respond when asked by Bloomberg News. Three Arrows’ law firm, Solitaire LLP, didn’t respond to a request for comment.
A broad-based selloff in digital assets and the collapse of the TerraUSD and Luna tokens has left Three Arrows facing liquidity troubles. The fund’s co-founders told the Wall Street Journal that it’s considering options including asset sales and a bailout, and has hired legal and financial advisers after large losses. A wave of liquidations has triggered fear of contagion risks for the industry.
Other lenders, including Genesis and BlockFi Inc., have sought to quell fear amid concerns over contagion risks from Three Arrows. On Tuesday, BlockFi said it received a $250 million credit line from FTX Trading Ltd.
Voyager will seek to recover the debt from Three Arrows and is in discussions for legal remedies, according to the statement. It has made an initial request for a repayment of $25 million USDC by June 24, and then requested repayment of the entire balance of USDC and Bitcoin by June 27. Neither of these amounts has been repaid, and Voyager is currently unable to assess the amount it will be able to recover, the company said.
As of June 20, Voyager has about $152 million cash and owned-crypto assets on hand, as well as $20 million of cash that is solely for buying stablecoin USDC, the company said.
Alameda, a trading outfit from FTX founder Sam Bankman-Fried, is the largest holder in Voyager with a nearly 12% stake, according to data compiled by Bloomberg. Bitcoin dropped back below $21,000 on Wednesday after staging a short-lived rally in Tuesday trading.
(Updates with analyst comments, stock price and loan details.)
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