SVB Financial strikes deal with creditors, eyes asset shuffle

SVB Financial Group, the former parent company of Silicon Valley Bank (SVB), has struck a deal with key creditors in a step towards resolving its bankruptcy case.

SVB Financial and a crucial bloc of senior bondholders agreed to a deal centred on forming a new company that would hold valuable assets such as the firm’s venture capital (VC) arm – SVB Capital – and tax attributes potentially worth billions of US dollars, according to court papers. The proposal is tentative and still needs court approval.

The company explored selling the venture capital unit, but determined it is likely worth more than what two leading bidders offered, according to court papers filed on Tuesday (Jan 9). Advisers pegged the present value of the VC business at as much as US$572 million, some US$55 million higher than their assessment of the best bid, the court papers show.

The deal puts Wall Street heavyweights in a position to own stakes in the new entity. The bondholders that negotiated with the company include the likes of Davidson Kempner Capital Management, Pacific Investment Management and King Street Capital Management, according to a July court filing, the group’s most recent disclosure.

The restructuring deal calls for other assets, such as cash and securities, to be placed in a trust for the benefit of creditors. The restructuring proposal must be worked into a bankruptcy-exit plan on which creditors can vote.

Still, the biggest obstacle remaining for creditors is a fight with federal regulators about what should happen with nearly US$2 billion in cash SVB Financial had on deposit at its own bank at the time of its failure. The Federal Deposit Insurance Corporation argued that SVB must go through a formal process controlled by the agency to get the money back.

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But last week, the agency formally denied the company’s claims for the deposits in a “mere two sentences”, according to court papers. A US district judge decided in December that the question of who legally owns the nearly US$2 billion goes beyond bankruptcy law and should be handled in district court. BLOOMBERG