Confidence in Voyager Digital “significantly eroded,” says Eight Capital

Adhir Kadve of Eight Capital has grounded his take on Voyager Digital Ltd. (Voyager Digital Stock Quote, Chart, Analysts, Financials, News CSE:VYGR), shifting his rating from “Neutral” to “Under Review” and removing his target price in an update to clients on Wednesday.

Founded in 2018 and headquartered in New York City, Voyager Digital is a digital asset focused agency broker and financial services firm with 3.2 million Verified Users and over one million funded accounts. Kadve’s update comes after Voyager Digital confirmed its exposure to Three Arrow Capital, the Singapore-based crypto hedge fund that could be facing insolvency, though its exposure of $660 million ($350 million USDC and 15,250 BTC) was more than double its previously-stated exposure of $326 million. Kadve said his coverage suspension will continue as he awaits for more substantive details surrounding the impact and potential fallout from the announcement.

“In our view, this morning’s announcements could potentially lead to mass withdrawal requests from VOYG’s user base, as we believe the confidence in the Voyager platform has significantly eroded,” Kadve said.

In his Friday report, Kadve indicated that cryptocurrency trading volumes had dropped by 13 per cent in the second calendar quarter of 2022 for a value of $1.97 trillion in deposits, according to figures from theblockcrypto.com.

With Three Arrows Capital now confirmed as a counterparty to Voyager Digital, company management has confirmed it will be trying to recapture some of the assets, beginning with an initial request of $25 million USDC due by Friday, with the remaining balance due on Monday, with Three Arrows Capital being considered in default if either deadline is missed. Furthermore, the company will be seeking recovery from Three Arrows, but it cannot currently assess the amount that can potentially be recovered.

As it tries to satisfy customer liquidity requirements, Voyager signed a definitive agreement with Alameda Research to secure two revolving lines of credit to provide Voyager with access to further capital, with one valued at US$200 million and the other coming in at 15,000 Bitcoin; the agreement had previously been considered a non-binding term sheet in the company’s Friday announcement.

Under the terms of the agreement, Voyager will be able to draw a maximum of US$75 million from the credit facilities on a rolling 30-day period, and the total amount of the loan cannot exceed 25 per cent of the company’s AUM less $500 million, with Voyager attempting to secure additional funding within the next 12 months.

According to Voyager’s market update, Alameda Research indirectly holds 22,681,260 common shares of Voyager, representing approximately 11.6 per cent of the outstanding common and variable voting shares.

“Today’s actions give Voyager more flexibility to mitigate current market conditions and strengthen our relationship with one of the industry leaders,” said Stephen Ehrlich, Chief Executive Officer of Voyager Digital in the company’s June 17 press release. “Safeguarding customer assets is always our top priority, and ongoing, prudent risk management as well as a strong balance sheet are two ways that we continue to demonstrate that priority.”

The news comes just over a week after Voyager announced it no longer had assets with Celsius Network after it had frozen nearly $8 billion in deposits on account of extreme market conditions, with no indication of when users would be able to withdraw the funds.

“Voyager holds a strong position in the crypto industry. Not only were we among the first to go public and provide full balance sheet transparency, our leadership also has deep financial expertise across the sector and has led companies through multiple market cycles,” Ehrlich indicated on June 14. “The company is well capitalized and in a good position to weather this market cycle and protect customer assets. It is Voyager’s goal to continue to build secure products and services, as well as build trust and leadership in the cryptocurrency industry.”

With the status change on the stock, Kadve’s financial estimates for Voyager Digital have also shifted to being under review; given the volatility of the market, Kadve had reduced his revenue projection from $449.7 million to $439.8 million, and his 2023 estimate from $545.2 million to $354.2 million.

“Cryptocurrency markets continue to display heightened volatility, with overall market caps and trading volumes continuing to decrease,” Kadve said in his Friday update. “Further exacerbating this volatility is job cuts at several well-known crypto firms due to fear of a protracted downturn in prices, as well as several crypto firms that have paused or limited user asset withdrawals amidst this volatility.”

Voyager Digital’s stock price has run aground to the tune of a 94.7 per cent loss in 2022, with the stock’s value getting sliced in half since the Tuesday close of $1.60/share as it has plunged to an all-time low.