Voyager Digital (VOYG) shares fell more than 60% after the crypto broker disclosed its exposure to hedge fund Three Arrows Capital (3AC) and said it may issue a "notice of default" to the crypto fund if it fails to make a loan repayment.

Voyager's exposure to 3AC consists of 15,250 bitcoins ($370 million) and $350 million USDC, the company said in a statement Wednesday.

Dubai-based Three Arrows Capital said June 17 it had suffered heavy losses in the recent market downturn and had hired legal and financial advisers to figure a way out, according to a Wall Street Journal report. 3AC invested over $200 million in LUNA tokens in February, an amount that is now essentially worthless since the Terra ecosystem imploded in mid-May, co-founder Kyle Davies told the WSJ. Last week, the company was reported to be facing possible insolvency after incurring at least $400 million in liquidations.

Wall Street analysts have turned cautious on Voyager, and are opting to steer clear of purchasing shares until there's more clarity.

"The 3AC exposure raises survivability questions for VOYG," Chris Allen, an analyst with boutique investment bank Compass Point said in a note to clients Wednesday. "With 3AC contemplating asset sales or a rescue by another firm , it is unclear if the fund will be able to repay its outstanding loans and even if it somehow has the capacity to do so, we would expect it to take an extended amount of time." Allen has a neutral rating on Voyager's shares along with a price target of $6 (C$8).

BTIG analyst Mark Palmer downgraded the firm's recommendation on Voyager shares to neutral from buy, while removing a price target (previously $11.60, or C$15). Palmer told clients in a note there isn't enough clarity on how the situation will unfold and it's difficult to value the stock right now.

The stock was priced at C$0.60 in Toronto as of 15:11 UTC.

Voyager, which has agreed to a loan from Alameda Ventures to secure its assets, initially asked for repayment of $25 million USDC by June 24, and then requested repayment of the entire amount by June 27, 2022. While several days remain before those deadlines, neither of these amounts has been repaid, Voyager said.

"Failure by 3AC to repay either requested amount by these specified dates will constitute an event of default. Voyager intends to pursue recovery from 3AC and is in discussions with the Company's advisors regarding the legal remedies available," Voyager said.

"The Company is unable to assess at this point the amount it will be able to recover from 3AC," it noted.

The two-part loan from Alameda comprises a cash/USDC-based credit facility with an aggregate principal amount of $200 million and revolving credit facility for 15,000 BTC. The loan will be used only if it's needed, Voyager said.

The company also has about $152 million in cash and crypto on hand, and a further $20 million that can be used only for buying USDC.

Thee Arrows Capital had not responded to requests for comment by publication time.

UPDATE (June 22, 12:10 UTC): Adds background on 3AC situation in fourth bullet point.

UPDATE (June 22, 12:27 UTC): Adds Alameda loan, cash reserves, request for comment; changes lead photo.

UPDATE (June 22, 14:04 UTC): Rewrites headline, first paragraph to focus on shares.

UPDATE (June 22, 14:30 UTC): Adds quote from Compass Point in fifth bullet point.

UPDATE (June 22, 15:13 UTC): Restructures story, adds analyst comment, downgrade.