Silvergate First Amended Plan Provides for Common Equity to Retain Ownership in Reorganized Silvergate

Relevant Documents:
First Amended Plan (Blackline)
Disclosure Statement for First Amended Plan (Blackline)

The Silvergate Capital Corp. debtors filed a first amended chapter 11 plan and disclosure statement yesterday, June 24, to incorporate court-approved settlements with securities class-action and indemnification claimants and common equityholders Exploration Capital Fund and Stilwell Activist Investments. The settlement with the common equityholders resolves their objections to the class action and indemnification settlement and allows common equity to retain ownership in reorganized Silvergate.

The debtors filed their original wind-down/liquidation trust plan premised on a restructuring support agreement with holders of approximately 63% of Silvergate Capital Corp.’s preferred stock on the petition date in September 2024. In broad strokes, the amended plan provides for the continuation of certain operations, including the Silvergate Exchange Network, or SEN, and Diem (the block chain-based payment network that the debtors acquired from Diem Group in January 2022) businesses, preserve tax attributes or NOLs, for the benefit of common shareholders, and establishes a liquidation trust to wind down the remainder of the business.

A hearing on the disclosure statement is set for July 15 at 11:30 a.m. ET, with objections due July 8 at 4 p.m. ET.

The plan provides for holders of secured and general unsecured claims to receive payment in full in cash including postpetition interest at the federal judgment rate. Subordinated notes claims, to be allowed in the aggregate principal amount of $15.9 million plus interest at the nondefault contract rate, would also be entitled to payment in full in cash.

Under the settlements, the securities class-action plaintiffs would receive $37.5 million while indemnification claimants would receive $15 million in new insurance coverage, $40.3 million in reserves and $7.45 million for indemnified expenses as of the effective date. The indemnification claims were asserted as $300 million.

To resolve the common equityholders’ objections, they would retain ownership in reorganized Silvergate, which would be funded with cash, residual assets and causes of action, and plan litigation trust proceeds. The common equityholders would also receive a $1.5 million expense reimbursement for their litigation costs, subject to reconciliation of NYDIG Servicing’s $88.7 million disputed unsecured claim.

The settlement includes an opt-out condition that would give the ad hoc preferred stockholder group the right to opt out of the common stock settlement if the bankruptcy court determines that NYDIG has an allowed unsecured claim that results in a material adverse change. Exercise of the opt-out would not alter reimbursement of expenses for Stilwell and Exploration Capital, reinstatement of common stock in reorganized Silvergate (which would not be subject to dilution) or reorganized Silvergate’s retention of the Silvergate NOLs (estimated at $1.4 million in federal NOLs and $1.3 million in state NOLs as of July 31, 2024).

If the bankruptcy court sets NYDIG’s allowed unsecured claim and the preferred stockholders do not exercise the opt-out, then $1.6 million in cash to be retained by the reorganized company would be reduced by 50% of the allowed amount of the NYDIG claim, provided that the reduction would not exceed $1.1 million.

Preferred equity would receive proceeds from a litigation trust until reaching a $150 million aggregate recovery, following which preferred and common equity would split recovery proceeds on an 80/20 basis, until preferred equityholders reach their $200 million liquidation preference, after which common equity would receive all proceeds.

In the event that the opt-out is exercised, common stockholders would receive 100% of the net liquidation trust distributions after the preferred stockholders receive $200 million in cash. Stilwell and Exploration Capital would also receive board selection rights, with the directors and officers of the reorganized company to be disclosed in a plan supplement.

The ad hoc preferred stockholder group would select the liquidation trustee in consultation with Stilwell and Exploration Capital – and the three-member liquidation trust board would be selected as follows: two members selected by the preferred stockholders and one by Stilwell and Exploration Capital.

Common equityholders Stilwell and Exploration Capital also agreed to stand down on their request to increase the scope of the examiner’s ongoing investigation until plan confirmation. However, in the event that the opt-out is exercised, then the common equityholders’ rights to object to confirmation and seek an extension of the examiner’s scope of work would be reinstated.

The plan also provides for preferred stock interests to hold a residual interest in indemnification reserves after all indemnifiable claims are satisfied, subject to reserve step-downs.

With respect to the releases, pursuant to the settlements, all debtor and estate claims are waived against “Indemnified Individuals.”

First Amended Plan / Disclosure Statement

The plan’s classes, along with their impairment status and voting rights, with a modification showing that common stock interests are now considered unimpaired and deemed to accept, are shown in the chart below:
 

 

Treatment of Claims and Interests

The treatment of claims and interests, with changes from the initial plan, is shown below: