Summary:
• Voyager Digital conducted a single due diligence call with Three Arrows Capital prior to the latter’s bankruptcy filing.
• The call resulted in a one-page net asset value statement that estimated 3AC’s NAV at $2.4 billion.
• Several crypto firms reported substantial losses due to 3AC’s bankruptcy, including Genesis Global Holdco, Celsius Network and BlockFi.

Voyager Digital and Three Arrows Capital

Court documents filed Tuesday show that just weeks before filing for bankruptcy protection, crypto hedge fund Three Arrows Capital (3AC) sent lender Voyager Digital a one-page net asset value (NAV) statement. A single due-diligence call was conducted between the two firms on February 28th, 2022, and lasted either 30 minutes or an hour depending on who was interviewed.

Due Diligence

The document dated May 13th, 2022 gave Three Arrows Capital’s NAV as just under $2.4 billion and revealed the level of due diligence carried out by Voyager Digital with regard to the hedge fund’s financial standing prior to its filing for Chapter 15 bankruptcy in New York on July 1st.

Other Losses

Genesis Global Holdco reported that its Asia-Pacific unit had lent 3AC $2.4 billion in cash and digital assets, while Crypto lender Celsius Network cited loans worth $75 million and BlockFi also said it suffered “material losses” from the bankruptcy because 3AC was one of its largest borrowers. During interviews conducted by court personnel it became apparent that none of these parties had any background in credit risk management or performed any stress testing of 3AC’s liquidity prior to extending their loans to them.

Loan Portfolio Impacted

The loan extended by Voyager accounted for almost 58% of its loan portfolio and totaled $654 million; leading to further financial troubles when 3AC declared bankruptcy shortly afterwards. This caused a wave of collapses among other crypto firms whose investments were bound up with those made by Voyager Digital into Three Arrows Capital’s NAV statement prior to their downfall.

Conclusion

These court documents provide insight into the extent of due diligence undertaken by Voyager Digital when considering an investment into Three Arrows Capital’s NAV statement back in May 2022; which ultimately proved insufficient when it came to protecting against such significant losses upon the hedge funds subsequent bankruptcy declaration three months later in July 2022