BOOM GO CRASH

Crypto Lender Celsius On Pace to Run Out of Cash by October


Krisztian Sandor
Mon, August 15, 2022 


Celsius Network, the crypto lender that filed for bankruptcy in July, appears to be in even worse financial straits than previously signaled.

A new court filing Monday from Kirkland & Ellis, a law firm the crypto lender hired to lead its restructuring efforts, included financial projections that Celsius will run out of cash by October.

The filing, submitted to the U.S. Bankruptcy Court for the Southern District of New York in advance of an upcoming hearing, also stated that the crypto lender holds $2.8 billion less in crypto than it owes to depositors.

“My initial thought was, ‘Wow, that's a big hole.’ It’s pretty tough,” Thomas Braziel, founder of 507 Capital, an investment firm that provides financing around bankruptcies and reorganizations, told CoinDesk.

Celsius was caught up in this year's crypto crisis, which led to withdrawal suspensions and insolvencies of various lenders, exchanges and investment companies. Celsius halted all user withdrawals in June, citing “extreme market conditions.”

Last month, Celsius filed for Chapter 11 bankruptcy and acknowledged that it had a $1.2 billion hole in its balance sheet – liabilities exceeding assets – after it paid off its debt to decentralized finance protocols. That calculation included the estimated value of the firm’s mining equipment and unspecified “other” assets.

Read more: Celsius Lays Out Mining-Focused Reorganization Plan at First Bankruptcy Hearing

Running out of money

The latest disclosure showed that Celsius holds cash that is enough for less than three months, and it forecasted that the company will run out of money by the end of October.

In the monthly cash flow forecast, the firm disclosed a beginning cash balance of almost $130 million at the start of August.

Given the firm’s operating expenses and other costs including expenditure for restructuring efforts are expected to total $137 million for the next three months, the balance would turn negative in October. By then, the firm projects it would have liquidity of negative $33.9 million.

The crypto lender projects to run out of cash by October. (Kirkland & Ellis)

“They [Celsius] could obtain debtor-in-possession financing or sell assets,” Brandon M. Hammer, counsel at Cleary Gottlieb Steen & Hamilton, a law firm, told CoinDesk. “However, to take such steps they would need court approval, which requires notice and an opportunity for interested parties, like customers and the creditors committee, to object." (Neither Hammer nor the law firm are involved in the bankruptcy case.)
Bitcoin Hole

The document also showed that Celsius’ liabilities in crypto to customers surpasses $6.6 billion while the lender only holds $3.3 billion of digital coins – for a $2.8 billion difference as of July 29.

“The coin deficit seems somewhat greater than the losses described in the first day disclosures,” Hammer said. “It also appears that the company likely had to sell assets at depressed prices to meet customer withdrawals before the 'pause.' Such sales are common in bank run situations and may, depending on the particular facts, be subject to clawback risk.”

The most alarming is the hole in bitcoin holdings. Celsius disclosed it owes $2.5 billion in bitcoin (104,962 BTC) while the firm holds $348 million in bitcoin (14,578 BTC) and $557 million in a type of bitcoin derivative (23,348 WBTC).

“The bitcoin hole is huge, much bigger than I would have suspected,” Braziel said.

Celsius' digital coin liabilities to users exceed its assets by $2.8 billion. (Kirkland & Ellis)

The lender also holds $1 billion less in ether (ETH) than what it owes to users, although the 410,000 stETH, an ether derivative token, is still in the firm’s possession. The hole in USDC stablecoin holdings accrues to $700 million.
The issue with CEL token

According to the filing, Celsius has 658 million CEL tokens in its treasury; this is the platform’s utility token. Celsius owes 279 million of the tokens to clients, leaving the firm with a 379 million surplus . At current market prices, the CEL net position would be worth almost $1 billion, more than double than what’s in the document, as the token is in the middle of a social-media-driven short squeeze attempt.

Still, the price rise does not help the company solve its balance sheet problem. Most of the token’s supply is locked up on the platform and liquidity on exchanges is thin. If the firm would try to sell CEL to cover a part of the hole on its balance sheet, prices would likely tank.

“The asset side of the CEL holding is probably worth zero,” Braziel said, adding that the liabilities are still there because CEL token owners will probably try to come after Celsius and claim for $1 per token.