FTX Plan: 98% Creditors to Get 118% Back, $15B Asset Recovery

Key Takeaway

• FTX proposes a plan to return 98% of creditors 118% of their claims in cash within 60 days post-court approval.
• The estate expects $14.5 to $16.3 billion available for distribution, despite not benefiting from crypto market recovery.
• IRS and CFTC settle claims with FTX, prioritizing full repayment plus interest to users and investors over their own claims.

FTX's Remarkable Turnaround

In an unprecedented move in the realm of U.S. bankruptcies, the defunct cryptocurrency exchange FTX has unveiled a reorganization plan that promises nearly all its creditors full compensation for their claims, plus interest. This announcement comes after the company's dramatic collapse in November 2022, which resulted in significant customer account deficits and the conviction of its founder, Sam Bankman-Fried, for fraud. Under the leadership of John Ray III, who took the helm amidst the turmoil, FTX has managed to gather approximately $15 billion, primarily through the sale of venture capital investments. This financial recovery enables the company to propose complete recoveries for its creditors, marking a stark contrast to the dire situation Ray inherited, which he described as a "dumpster fire" and a "crime scene."

Strategic Asset Liquidation

Contrary to what some might assume, FTX's financial resurgence is not a direct result of the recent cryptocurrency market rally. The company clarified that about 99% of the bitcoin and other cryptocurrencies believed to be on the exchange at the time of its bankruptcy filing were missing. Instead, the recovery is attributed to the strategic liquidation of its investment portfolio, including a nearly $900 million deal for its stake in AI startup Anthropic. These successful asset sales have significantly bolstered FTX's cash reserves, with estimates suggesting that the company's assets converted into cash will total between $14.5 billion and $15.8 billion. This substantial financial foundation is set to provide a robust basis for compensating creditors.

Comprehensive Creditor Compensation Plan

FTX's restructuring advisers have meticulously crafted a proposal for distributing the accumulated cash to creditors, aiming to conclude the Chapter 11 case. This plan has received backing from all major creditor constituencies and features a notable $200 million cash settlement of a $24 billion claim by the Internal Revenue Service. Depending on the nature of their claim, some creditors could recover as much as 142% of what they are owed, with the majority expected to receive 118% of their pre-bankruptcy holdings. The plan's approval process involves a vote by claimants on the terms before a final court hearing to officially confirm it.

Management Quotes

• John Jay Ray III, current CEO of FTX:

  "As previously disclosed, FTX.com had a massive shortfall at the time of the Chapter 11 filing in November 2022 – holding only 0.1% of the Bitcon and only 1.2% of the Ethereum customers believed it held... Accordingly, Debtors have not been able to benefit from the appreciation of these missing tokens during these Chapter 11 cases."