The failure of Genesis would see the landowner pay out $350 million to financier Todd Boehly

Crypto conglomerate Digital Currency Group is trying to raise capital and avoid bankruptcy of its brokerage subsidiary Genesis, in part to avert the immediate repayment of a loan to U.S. financier Todd Boehly's investment house.

Boehly, who recently bought Chelsea Football Club, led a debt raise for DCG in November last year through his investment group Eldridge, which consisted of a $600 million loan from Eldridge and a group of other investors.

Genesis has already suspended withdrawals in its lending unit, allowing customers to borrow its digital tokens for high returns, and hired investment bank Moelis to consider its options after crypto exchange FTX's outage last month sent shockwaves across the industry.

Now people with direct knowledge of DCG's finances have said that if that wholly owned subsidiary were to fail, the $350 million outstanding on that loan would become due immediately. The senior secured term loan ranks higher than other debts and has certain preferential rights, meaning it must be repaid first in any situation, one of the people said.

The cascading demands for cash illustrate how FTX's implosion continues to threaten the broader crypto industry, where a few major players like DCG play a central role in a market that purports to be decentralized.

DCG is one of the industry's largest and earliest investors in crypto projects and coins. Founded in 2015 by billionaire Barry Silbert, the group owns assets such as Genesis and investment manager Grayscale. The companies are linked by a web of intra-company loans and investments, the FT previously revealed.

Silbert told investors that $350 million of the Eldridge loan was outstanding after Genesis curtailed its operations last month. DCG has $1.6 billion in debt to Genesis, but its loan from Eldridge - made alongside investors including California asset manager Capital Group, private equity firm Francisco Partners and investment manager Davidson Kempner Capital Management - has concessional terms. Last month, Genesis said it had “no plans to file for bankruptcy immediately.”

DCG said its relationship with Eldridge "is completely independent of Genesis' restructuring strategy and has no bearing on any outcome at Genesis." Genesis is wholly owned by DCG. Eldridge declined to comment.

Boehly's stake in DCG is one of several investments by the US billionaire in digital assets. In March, Eldridge invested in fintech and crypto infrastructure company Cross River and last year backed crypto exchange and wallet provider Blockchain.com.

Eldridge believes that Genesis' suspension of payouts means it will be unable to repay its debts and therefore default, people familiar with the matter said. However, those people added that Eldridge was anxious to avoid losing its investment and was working with DCG to help it raise capital and pay Genesis' investors, clients and customers.

These include customers of the Winklevoss twins' crypto exchange Gemini, which is owed $900 million, and the Dutch exchange Bitvavo, which is owed €280 million. Bitvavo said on Friday that it was able to pre-fund all locked assets at DCG and its subsidiaries and that its customers “are not exposed to DCG liquidity issues.”

The creditors have formed a committee to recover their funds.

DCG was valued at $10 billion last year and is backed by investors including SoftBank, Ribbit Capital and CapitalG, Alphabet's venture arm.

Since the crypto crisis erupted, the company has been rushing to raise capital and is looking for cash before it may have to sell any of its portfolio companies, the people said.

Even before crypto confidence collapsed this November, investors in DCG's debt securities had marked down their holdings, according to securities filings. In September, Capital Group marked down $1.26 million in DCG debt by 17 percent.

DCG owes Genesis $575 million in loans due in May 2023, money that was used to finance investments in another of its subsidiaries, asset manager Grayscale, as well as stock buybacks. It also has a $1.1 billion note due 2032 that came into being when DCG took over Genesis' liabilities following the collapse of digital asset hedge fund Three Arrows Capital over the summer.