Last Updated on December 26, 2022 by Bitfinsider
The negotiations between Nexo and Vauld, a competing cryptocurrency lender, to possibly buy each other have come to a stop.
After six months of discussions, the prospective agreement has failed, according to a source with firsthand knowledge of the situation. Darshan Bathija, the founder and CEO of Vauld, wrote to the company’s creditors today and stated that “our discussions with Nexo have unfortunately not come to fruition.”
Since Vauld stopped accepting client withdrawals due to a serious liquidity shortage in early July, Nexo and Vauld have been in talks about a potential merger. At the time, Nexo and Vauld had a 60-day exclusive due diligence contract for Nexo to consider buying it. The due diligence window was then twice extended. The talks between the two sides have now been officially ended.
Bathija’s email stated: “We have since sought a mutual agreement with Nexo to terminate the existing exclusivity arrangements and we are continuing our active engagement with the shortlisted fund managers in developing a viable strategy that would best serve the creditors’ interests.”
The proposed agreement didn’t materialize for a number of reasons, according to the insider. Vauld suffered big losses in the defunct Terra ecosystem, Indian authorities seized company assets, money was left on the defunct cryptocurrency exchange FTX, and there were sizable loan receivables from Amber Group. The source noted that the proposed merger did not make sense for Nexo because Vauld has a sizable client base in the United States and Nexo recently disclosed its intention to depart the nation.
Nexo twice presented Vauld with the potential deal parameters before ending the discussions. Vauld and its creditors, however, weren’t pleased with such conditions.
“The Revised Nexo Proposal does not allow for a debt tender offer by way of a Reverse Dutch Auction (the ‘RDA’) which would give creditors an early exit option. We had explained to them that based on our engagement with creditors, an early exit option is vital to the success of any proposed restructuring. Unfortunately, the benefits offered under the Revised Nexo Proposal, such as an early credit withdrawal, are set at a threshold which in our view is generally unachievable by the majority of creditors. Given the above, we believe that the Revised Nexo Proposal would not be in the best interests of all the creditors,” the email further stated.
Vauld and its creditors also think Nexo didn’t disclose its financial situation openly enough during negotiations. In Bathija’s email, he writes, “Nexo has failed to respond to requests for a comprehensive due diligence exercise on them, including a solvency assessment of Nexo, or otherwise what measures may be able to be agreed upon to provide creditors with a greater level of assurance in the event of Nexo’s insolvency,”
Vauld’s suggested restructuring plan is to choose a fund manager to look after customer assets now that the possible Nexo transaction has fallen through.
According to the email, Vauld currently has a $98 million cash shortfall. “Overall, in the period from 1 August 2022 when we last provided an update of the financial position of the Company, the net deficit or ‘gap’ has increased from USD81m to USD98m. This is largely a result of a loss in value due materially to: (i) FTX bankruptcy proceedings where we had a net exposure of USD8.8m; and (ii) depreciation of token prices relative to stables by approximately 24%.”
Vauld was given another credit protection extension last month and now has until January 20 to resolve its financial problems. However, the business has reportedly requested yet another extension, according to a document. The document states, “We have the hearing for the moratorium extension on January 17, 2023.”
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