FTX Restructuring Plan Revealed: FTX Creditors to Receive Full Compensation Plus Profits?

On May 8th, FTX (FTX Trading Ltd.) and its affiliated debtors submitted a restructuring plan and disclosure statement to the United States Bankruptcy Court for the District of Delaware, revealing the distribution plan for global customers and other creditors. The plan is expected to centrally distribute almost all assets held by FTX at the time of its bankruptcy in November 2022 to global customers and other creditors.

Creditors Expected to Receive 118% Approved Bond Compensation

FTX and its affiliated debtors submitted a revised version of the restructuring plan and disclosure statement to the United States Bankruptcy Court for the District of Delaware on Tuesday. It is anticipated that the total value of assets collected, converted into cash, and available for distribution will range between $14.5 billion and $16.3 billion. This amount includes assets controlled by Chapter 11 debtors and assets controlled by the joint official liquidators of FTX Digital Markets, Ltd. (Bahamas), the Securities Commission of the Bahamas, and the joint official liquidators of FTX Australia.

Reportedly, FTX owes approximately $11 billion to customers and other non-government creditors. The additional cash will be used to pay interest to over 2 million customers of the company. According to the documents, 98% of FTX creditors will receive at least 118% of the approved bond compensation in cash within 60 days of the plan taking effect. This represents a further increase from the estimated payout rate of 93% - 97% one month ago. These creditors are classified in the documents as a special “convenience type” for claims amounts of $50,000 or less.

Other creditors will receive 100% of the approved bond compensation and be compensated for the time value of their investments, which the documents state is worth billions of dollars, with an annual interest rate of up to 9%. Government creditors' claims will be classified as secondary compensation to ensure that non-government creditors receive full interest payments.

This is a rare outcome, as in U.S. bankruptcies, creditors typically receive only a small portion of the face value as compensation.

Furthermore, court documents indicate that while all debts will be fully repaid with interest, shareholders will receive nothing. Depending on the type of claims held, some creditors may recover up to 142% of the claim amount. However, the majority of customers (98% of FTX creditors) are expected to receive approximately 118% of the amount held in the FTX platform on the day FTX filed for bankruptcy protection, within 60 days of the plan taking effect.

BTC and SOL Price Increases Are Key to Creditors' Compensation

FTX filed for bankruptcy in November 2022, at a time when BTC was at a low point of around $16,500 and SOL was at approximately $14. Since FTX's bankruptcy filing, BTC and SOL have seen significant increases in price, with gains of over 340% and 1000%, respectively.

According to data submitted in the FTX case report, FTX holds approximately 59 million SOL and 21,482 BTC. Therefore, the key to the anticipated full compensation lies in the dramatic surge in the prices of BTC and SOL, in which FTX holds a substantial amount of assets.

Key Points in FTX Restructuring Plan and Impact on Creditors

In the initial stages of the announcement, the FTX platform's token, FTT, surged in response, reaching a maximum increase of 40%.

The restructuring plan submitted by FTX to the court may not be the final version and requires approval from the bankruptcy court. Once approved, most small creditors can expect compensation within two months.

For creditors, the compensation amount is calculated based on the token prices at the time of FTX's bankruptcy filing in November 2022, missing out on any gains resulting from token price increases.