Thread by @wassielawyer

1/ Spent 2 hours trawling through Celsius filings to write this thread explaining in non-lawyer friendly terms what the winning Celsius bid entails.

TLDR: If your Celsius bag is more than $5000, you get smol distribution and become shareholder in mining / PE company.

https://twitter.com/wassielawyer/status/1661667192533061632

2/ Worth noting that the eventual winning bid was from Farenheit which improved on the 'stalking horse' terms initially put together by NovaWulf in consultation with the debtors.

Those whose interests in this are related to their FTX bags can expect something similar...

3/ a 'baseline' structure with the opportunity for other parties to provide a "better" deal.

So what do creditors get under the terms of the winning bid? The headline point that keeps getting repeated is 'equity' - but its a bit more than that.

4/ Lets look at what Celsius currently has - (a) DeFi crypto assets, (b) loan portfolio, (c) PE & VC investments, (d) liquid crypto (about 500m) and (e) mining assets.

The plan proposes that all of these (except liquid crypto) will go into a newly formed company (NewCo).

5/ The headline point? 100% of the equity in the NewCo will go to creditors that are owed more than $5000 USD pro rata (subject to some management shares and fees we will discuss in more detail).

Those owed less than $5000 USD get 70c on the dollar on their claims and no equity.

6/ The liquid crypto (about 500m) will be distributed to creditors above $5000 USD after deducting, among others, (a) payouts to all convenience / custody claims, (b) the NewCo Capitalization Amount (150m), (c) Initial Litigation Funding Amount (TBD) and (d) senior claims.

7/ What the above broadly means is that the liquid assets of the company will be used to first pay off the custody, small account holders and senior claims, fees, up to 150m invested into the NewCo to kickstart operations and to fund litigation (more on this later).

8/ So honestly if you are a participating creditor (above $5000 USD), you shouldn't expect to see much returns in terms of a distribution after all of the deductions.

Important point to note - you give up your debt claim against Celsius under this plan.

9/ This means that in exchange for your current claim against Celsius, you get:

(a) A pro rata distribution of the liquid crypto that is left (prob very smol amount)
(b) A pro rata share of any monies they get from suing Mashinsky etc
(c) a pro rata share of NewCo equity.

10/ So if you are owed 10m and you get 1m from liquid crypto distribution and 500k from suing Mashinsky, the only way to recover the remaining 8.5m is via appreciation of your equity.

The NewCo no longer owes you that 8.5m as debt so you get wiped out if Celsius 2.0 fails.

11/ I am emphasizing this point because it is an easy mistake to make.

You are NOT getting an IOU/debt token and equity. You are getting an equity ONLY in NewCo and a share of the litigation proceeds (if any).

12/ So what does your shiny new equity interest entail? Well it represents a share in NewCo which now has mining assets, some DeFi assets / business, a loan portfolio and a bunch of PE/VC investments.

Not bad. And that equity will likely be liquid too.

13/ But nothing in life comes free and the new managers / new investors need to be paid too.

So here is a quick pop quiz - of management salaries, outstanding debt, equity, who gets paid first?

Salaries of course - and part of the winning bid stipulates that a...

14/ 35m per annum salary be paid to the management team (i.e. the Farenheit team). Fairly chunky amount, but not too bad.

The Farenheit team will be putting in 50m of their own money to buy shares when the plan is implemented and they don't have a preferential distribution.

15/ Their equity is also subject to a 2 year lock-up but note that there is a carveout allowing them to sell up to 30% of their equity after 1 year if Celsius equity trades at 150% of NAV (as at Effective Date) and another 30% at 200% of NAV (as at Effective Date).

16/ In other words, after 1 year, the Farenheit team has the option to dump on you if Celsius equity token increases in value - and the reference value is NAV at the 'Effective Date' (i.e. when the plan becomes effective) so would expect it to be fairly low.

17/ The Farenheit team also gets 5% equity vesting over 5 years and options to purchase up to 10% of the NewCo equity over a 5 year period.

The options are fairly priced (references market price and an index) so no risk of super low exercise price options creating oversupply.

18/ I would like to take this opportunity to state that 'equity token' is not a given.

The first choice is to have the equity listed "on a stock exchange (e.g., NASDAQ, Abu Dhabi Securities Exchange (ADX), NASDAQ Dubai)".

Only if that fails will they consider tokenizing.

19/ There are a lot of terms around the mining assets which leads me to think that the real value which Farenheit sees in Celsius are its mining assets.

Won't bore people here but in short, US Data Mining Group is gonna run the mining assets.

20/ So now that we have NewCo and liquid distributions out of the way, a quick note on the final pot of recovery - litigation proceeds.

These proceeds will come out of suing Mashinsky, Shlomi and others and pursuing clawbacks. It is worth noting...

21/ that the clawbacks are subject to a de minimis amount - withdrawals over 100k in the preference period will not be subject to clawback.

Would expect the FTX estate to do something similar and only pursue 'large' claims.

22/ Anyway so my thoughts on the plan?

It is ok - not great but not terrible, what you would expect a compromise to look like.

Would I rather just get 70c on the dollar as a creditor >$5000?

Probably.

Is that possible given the company's current state?

No.

23/ Crypto people (and retail investors generally) tend to overrate equity because of the potentially astronomic returns but getting equity in a bankrupt company is not the same as investing into a start-up.

There is a reason creditors generally dont like being equitised.

24/ But all in all - I can't say it is a terrible plan. Not great, but not terrible.

Yes, you essentially waive all your creditor claims against Celsius but the NewCo financing structure doesn't seem terribly onerous so maybe the equity will trade at a reasonable valuation.

25/ As always - I am a hentai anime penguin in a suit. This thread is for entertainment purposes only.

None of these constitute legal, financial, ethical or philosophical advice.