The FTX Trade That’s Tempting Oaktree and Baupost

 It will be months, if not years, before FTX’s customers know how much they’ll get back from the failed crypto exchange. But as Bloomberg’s Justina Lee and Rachel Butt reported this week, some of the world’s savviest distressed debt investors are already looking to make a play.

For such firms, which profit by picking through the ruins of failed companies, bankruptcies this size don’t come around often. That helps to explain why the likes of Baupost Group and Oaktree Capital Management have inquired about buying claims of customers with assets stuck on the exchange. (Both firms declined to comment to Bloomberg News.)

The calculus behind any ultimate bets is tricky. First, customers would need to become desperate enough to accept a fraction of what they’re owed — via a transaction known as a claims trade — in return for getting some cash now.

The initial numbers weren’t promising. Restructuring professionals tasked with overseeing the FTX cleanup, led by one-time Enron liquidator John J. Ray III, tallied up $7.9 billion of liabilities owed by the main units of Sam Bankman-Fried’s crypto empire. That compares with more than $1 billion of digital assets turned up so far, and about $1.2 billion of cash. A lawyer representing FTX’s estate told a judge last month that a substantial amount of the firm’s assets “ have either been stolen or are missing.”

If the missing assets don’t turn up, prospective claims buyers will be weighing the odds that FTX’s caretakers can find them elsewhere. FTX has already hinted at clawing back donations to political groups, and there may be assets to recover in the Bahamas. FTX caretakers are also trying to get their hands on $440 million of Robinhood Markets Inc. shares tied to Bankman-Fried’s former trading house, Alameda Research.

Claims traders will also need to assess whether the value of customers’ crypto assets can rebound. At less than $17,000, Bitcoin still trades substantially below its $50,000 level of a year ago, but also well above its sub-$10,000 levels in the pre-pandemic era.

https://www.yahoo.com/now/ftx-trade-tempting-oaktree-baupost-210000381.html