Voyager Digital plunges on three-arrow exposure, analyst downgrade

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Shares of Voyager Digital (VOYG) fell more than 60% after the crypto broker disclosed its exposure to the hedge fund Capital of the Three Arrows (3AC) and said so can issue a “defect notice” to the crypto fund if it fails to repay a loan.

Voyager’s exposure to 3AC consists of 15,250 bitcoins ($370 million) and $350 million USDC, the company said in a statement Wednesday.

Dubai-based Three Arrows Capital said on June 17 that it had suffered heavy losses in the recent market downturn and had hired legal and financial advisers to find a way out, according to a Wall Street Journal report. 3AC invested over $200 million in LUNA tokens in February, an amount that is now essentially worthless since the The Terra ecosystem has imploded in mid-May, co-founder Kyle Davies told the WSJ. Last week, the company reportedly faced possible insolvency after incurring at least $400 million in liquidations.

Analysts urge caution

Wall Street analysts have become cautious about Voyager and are opting to avoid buying shares until there is more clarity.

“The 3AC exposure raises questions of survivability for VOYG,” Chris Allen, an analyst at boutique investment bank Compass Point, said in a note to clients on Wednesday. “With 3AC considering an asset sale or bailout by another company, it is unclear if the fund will be able to repay its outstanding loans and even if it somehow has the capacity to do so, we expect it to take longer.” Allen has a neutral rating on Voyager shares as well as a price target of $6 (C$8).

BTIG analyst Mark Palmer lowered the company’s recommendation on Voyager shares to neutral to buy, while removing a price target (previously $11.60, or C$15). Palmer told clients in a note that there was not enough clarity on how the situation would play out and that it was difficult to assess the stock at this time.

The stock was priced at CA$0.60 in Toronto at 3:11 p.m. UTC.

Deadline for 3AC

Voyager, who accepted a loan from Alameda Ventures to secure its assets, initially requested repayment of USDC$25 million by June 24, and then requested repayment of the entire amount by June 27, 2022. Although there are several days left before those deadlines, none of these amounts have not been reimbursed, Voyager said.

“Failure by 3AC to repay any of the requested amounts by these specified dates will constitute an event of default. Voyager intends to pursue recovery from 3AC and is in discussion with the company’s advisers regarding available legal remedies,” Voyager said.

“The company is not in a position to assess at this stage the amount it will be able to recover from 3AC,” he noted.

Alameda’s two-part loan consists of a cash/USDC credit facility with an aggregate principal amount of $200 million and a revolving credit facility of 15,000 BTC. The loan will only be used when needed, Voyager said.

The company also has around $152 million in cash and crypto, and another $20 million that can only be used to buy USDC.

Thee Arrows Capital had not responded to requests for comment at the time of publication.

UPDATE (June 22, 12:10 UTC): Adds context to the 3AC situation in the fourth point.

UPDATE (June 22, 12:27 UTC): Adds Alameda loan, cash reserves, request for feedback; changes the main photo.

UPDATE (June 22, 14:04 UTC): Rewrote title, first paragraph to focus on actions.

UPDATE (June 22, 2:30 PM UTC): Adds a quote from Compass Point to the fifth point.

UPDATE (June 22, 15:13 UTC): Restructures history, adds analyst commentary, retrogrades.

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