A week after trading for SVB Financial was halted and regulators took over the holding company of Silicon Valley Bank and other subsidiaries, SVB Financial has taken the next inevitable step: Today announced that it has formally filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Southern District of New York. This means that SVB Financial can and intends to file an application with the courts to resume operations while finding buyers for its assets, including continuing with its plans to sell SVB Securities and SVB Capital , and more.
As part of that process, SVB Financial is also disclosing some of the financial condition of the holding company, which had a market cap of about $12 billion before shares plummeted last Friday as depositors made a run at the bank. (Trading was halted as the market cap was cut to about half of that $12 billion.)
The statement noted that the company “believes it is approx $2.2 billion of liquidity.” It also noted that the debt financed is approx $3.3 billion “in the aggregate principal amount of unsecured bonds”, which are only recourse against SVB Financial Group, “and have no claim against SVB Capital or SVB Securities”, which are legally separate entities. SVB Financial Group “also has $3.7 billion of outstanding preferred shares,” it said.
“SVB Financial Group intends to use the court-supervised process to evaluate strategic alternatives for SVB Capital, SVB Securities and the company’s other assets and investments,” the company said in a statement. That effort is being led by a five-member restructuring committee, with assistance from Centerview Partners LLC. Any sale process will be conducted through Chapter 11 proceedings and is subject to court approval, it added.
It also provided an update on the sale of assets currently and previously held within the group.
There are one many hitches in the search for a buyer for SVB’s banking division, which post-fed takeover is now called Silicon Valley Bridge Bank. This process is monitored by regulators. The group, on the other hand, said it had ‘significant interest’ in SVB Securities and SVB Capital. These two are still under SVB Financieel, but are technically different legal entities and are therefore not included in the Chapter 11 filing, nor in the sale of the bridge bank. They also remain active while being shopped separately for potential buyers, a process that began earlier this week.
The most important thing about Chapter 11 is that it means SVB Financial Group can resume operations outside the control of the FDIC as it goes through the next steps.
To that end, the holding company said it intends to “file the customary first-day motions in the bankruptcy court seeking, among other things, permission to continue the business of SVB Financial Group in the normal course of business once a hearing can take place . planned. Additional documents related to the bankruptcy court will be filed in the coming days,” the company said in its statement.
“The Chapter 11 process enables SVB Financial Group to preserve value as it evaluates strategic alternatives for its valued businesses and assets, especially SVB Capital and SVB Securities,” said William Kosturos, head of restructuring of SVB Financial Group, in a statement. “SVB Capital and SVB Securities will continue to operate and serve clients, led by their longstanding and independent leadership teams.”
As we previously reported, SVB Capital has approximately $9.5 billion in assets under management, with investments in a number of large VCs and funds as well as outright startups. SVB Securities has been around in one form or another since 1999. Based in Boston, it brokers mergers and acquisitions and provides other services to startups and others in nearly 700 deals.
SVB Financial also noted that in addition to cash and interests in SVB Capital and SVB Securities, “The Financial Group has other valuable securities accounts and other assets for which it is also exploring strategic alternatives.” It didn’t spell out the details of this in its statement today, but we’ll likely see more on this as the story unfolds in the coming weeks.
In a separate call to venture clients on Friday, Silicon Valley Bridge Bank CEO Tim Mayopoulos addressed the filing as he appeared to be reading from a script. “All of Silicon Valley Bridge Bank’s obligations are backed by the FDIC and the full faith and credit of the U.S. government,” he said, reiterating that SVB Bank, SVB Securities and SVB Capital are not included in the bankruptcy filing, according to the earlier statement. The wealth and private banking activities are included in the bankruptcy filing.
“We’re trying to be very clear about which settings are affected and which are not,” he said later on the phone call, as more customer questions surfaced on the morning news.
Additional reporting Natasha Mascarenhas.
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