SVB Financial faces year-end deadline for US$2 billion FDIC fight

SVB Financial Group, the bankrupt former parent of Silicon Valley Bank (SVB), is seeking to exit court protection by Jan 1 to protect billions of dollars worth of tax benefits that would go to creditors. The timeline could be challenged by an ongoing fight with the Federal Deposit Insurance Corporation (FDIC) over US$2 billion of deposits.

SVB Financial has just a few months to resolve the dispute with federal regulators over the recovery of the deposits, which became trapped when Silicon Valley Bank entered FDIC receivership in March, company attorney James Bromley said during a court hearing in Manhattan. So far, SVB Financial has struggled to obtain crucial documents from the FDIC.

If the standoff does get resolved in time, bondholders potentially stand to gain by using the firm’s net operating losses from the current year to reduce their own future federal tax liabilities. That’s something creditors can do if they take ownership of a company, and Bromley said it is a centrepiece of SVB’s payout plan.

Wall Street heavyweights like Appaloosa Management and Silver Point Capital are among distressed funds that have piled into the company’s bonds.

SVB Financial has tried to subpoena the agency, with only some success, according to Bromley. Meanwhile, SVB Financial plans to submit proofs of claim to the FDIC by the agency’s Jul 10 deadline, he added. The stalemate with the FDIC has slowed down the company’s court process and makes the year-end deadline a daunting task.

“They’re either going to play by the rules or they’re going to risk contempt,” US bankruptcy judge Martin Glenn said during the hearing, referring to the FDIC. “They’re not going to slow this process down.”

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Separately, Glenn said he expects to approve the company’s sale of its investment banking unit, SVB Securities after the company agreed to modify the scope of releases for the division’s management team. BLOOMBERG