The parent company of collapsed Silicon Valley Bank is considering reorganizing under bankruptcy and selling its healthy assets, Reuters is reporting, but creditors’ ability to tap into sale proceeds could be limited if bank regulators try to use the money as part of their bank rescue, analysts say.
SVB Financial Group said on Monday it had named William Kosturos, a bank crisis restructuring veteran, as its chief restructuring officer and created a restructuring committee consisting of five of its independent board members, Reuters reported.
Kosturos was the go-to person to manage the restructuring of Washington Mutual Bank in 2008, the largest bank failure in the United States.
Before it was taken over by regulators, Silicon Valley Bank was SVB Financial’s core business, but the parent company also has a handful of other businesses that could be attractive to buyers.
These include SVB Capital, an investment management company that oversees almost $10 billion in funds; SVB Securities, an investment bank; and SVB Private, a wealth-management company, according to the company’s 2022 10-K filing.
Buyers of healthy assets of a troubled company often prefer the sale to happen as part of a bankruptcy reorganization because they can acquire the assets free and clear of certain liabilities but also, if the sale isn’t under bankruptcy, they could end up having the assets clawed back if the company later files for bankruptcy.
“Bidders are often hesitant when distressed enterprises are attempting to sell assets,” the Reuters report says. “One reason is that a deal done outside of bankruptcy can be unwound if a company later seeks Chapter 11 protection within a certain timeframe.”
Creditors seek sale
Already a group of SVB creditors has formed an investment group in anticipation of a bankruptcy sale of the parent company’s assets and earlier this week made a big purchase of the parent company’s bonds at a steep discount, The Wall Street Journal reported.
The group, the Journal said, “wants the parent company to file for bankruptcy and then auction off its nonbank businesses through a court-supervised sale process.”
The group includes Centerbridge Partners, Davidson Kempner Capital Management and Pimco, the fixed-income investment management giant.
If these and other creditors are able to recover all of the parent company’s healthy assets, including its cash and securities, they could get close to $4.75 billion in the event of a liquidation, with much of that coming from SVB Private, the wealth management company, according to a Stifel analysis reported by the Journal.
SVB Financial had $2.6 billion in cash and securities at the end of last year and a market capitalization of $17 billion at the end of January, the Stifel analysis said.
One of the biggest unknowns for buyers of the assets, though, the Journal reported, is what the FDIC will do.
The agency last weekend took over some $175 billion in SVB deposits and has said it intends to make all of the account holders whole. Depending on how much money that ends up taking, the FDIC could look to any proceeds from the sale of the parent company’s assets to help make up any gap, the Journal reported.
The FDIC, the Journal said, “could argue that funds or assets at the parent level should be used to fill any hole in the bank’s balance sheet before bondholders can be paid a penny.”
That means the creditors’ newly formed investment group could have to wait to see what’s left before they get any proceeds from a sale.
“Depending on the scale of losses at Silicon Valley Bank, which regulators haven’t yet disclosed, its parent company may need to help cover them, and that could reduce any recovery for the bondholders,” the Journal said.
