Bankruptcy filings for private equity financed firms have moved higher in 2022 – a data point that should come as no surprise due to the challenging economic environment.
According to S&P Global Market Intelligence, forty-nine private firms filed for bankruptcy protection during the year – or about 6.6% of total bankruptcy filings. In 2021, 42 firms filed for bankruptcy, or 3.5% of the total. It is relevant to note that bankruptcy filings were higher in 2018, 2019, and 2022 – most likely fueled by COVID.
For 2022, 38 of the firms that filed have moved towards restructuring with six firms in liquidation and five still operating.
The list may not be comprehensive, as BlockFi and FTX are standouts, but Celsius Network is nowhere to be found.
The report comments specifically on the crypto sector, stating:
Cryptocurrency companies also had a disastrous year. Cryptocurrency exchange West Realm Shires Services Inc., doing business as FTX US, filed for bankruptcy Nov. 11. FTX founder Sam Bankman-Fried was charged by the U.S. Justice Department over alleged misappropriation of customer funds deposited with the platform. West Realm counts Temasek Holdings (Pvt.) Ltd., Lightspeed Ventures LLC and Greenoaks Capital Partners LLC among its backers.
Other bankrupt private equity-backed companies that have links with FTX include BlockFi Inc., Blockfi Lending LLC and Deck Technologies Inc.
Cryptocurrency lender Voyager Digital Ltd., which is backed by venture capital firms Jump Crypto, Digital Currency Group Inc. and Streamlined Ventures, began a voluntary Chapter 11 reorganization process July 5, days after its operating platform Voyager Digital LLC suspended trading, deposits, withdrawals and loyalty rewards due to prevailing market conditions.
Voyager agreed to sell its assets to FTX in September for about $1.42 billion, but it decided to reopen the bidding process months later following FTX’s collapse.
As the economic challenges have become more prevalent during the year, 2023 will probably start with more of the same.