Silicon Valley Bank Creditors Form Group in Advance of Possible Bankruptcy
Centerbridge Partners, Davidson Kempner and Pimco among investors who have hired PJT Partners in anticipation of possible bankruptcy, asset sales
Creditors of Silicon Valley Bank’s parent company have formed a group in anticipation of a potential bankruptcy filing, through which they hope to profit from a sale of the collapsed firm’s private-wealth and other units, according to people familiar with the matter.
The investor group, which is being advised by PJT Partners Inc., PJT 2.18% includes Centerbridge Partners LP, Davidson Kempner Capital Management LP and Pacific Investment Management Co., or Pimco, the people said. Most members bought parent SVB Financial Group’s SIVB -60.41% bonds coming into the weekend as they traded down to around 30 cents on the dollar, the people said. The group now holds a sizable chunk of SVB Financial’s $3.4 billion face value of bonds.
It wants the parent company to file for bankruptcy and then auction off its nonbank businesses through a court-supervised sale process, the people said. SVB Financial Group said on Monday that its board had appointed a restructuring committee to explore strategic alternatives. It hasn’t said whether it plans to file for bankruptcy.
If SVB Financial’s assets fetch a high enough valuation in any such auction, the bondholder group could profit. When a company’s assets are sold through bankruptcy, the proceeds often flow to its creditors.
The trading desk of Goldman Sachs Group Inc. GS 2.10% helped facilitate around $700 million of bond trades into distressed-debt investors’ accounts over the weekend, according to people familiar with the matter. Over $1.5 billion of the parent company’s debt has traded hands since Friday, when Silicon Valley Bank was put into receivership.
Silicon Valley Bank, the technology-focused lender that was SVB Financial’s core business, was taken over by federal regulators Friday after it was crippled by a dash for the exits by depositors. Over the weekend, regulators tried unsuccessfully to sell the business, and they were planning to take another crack at auctioning it this week, The Wall Street Journal reported.
Even though government officials have warned that SVB Financial Group’s stock is worthless—it hasn’t traded since Thursday—the parent company owns other assets that could have significant value.
They include SVB Capital, an investment manager that oversees $9.5 billion of funds on behalf of third-party investors, as well as an investment bank, SVB Securities, and a wealth- management company, SVB Private, according to securities filings.
In a research note published Monday, Stifel Financial Corp. SF 7.04% estimated that if creditors were able to recover all of the parent company’s nonbank 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. SVB Financial’s market capitalization was approximately $17 billion as of Jan. 31. It had cash and securities worth $2.6 billion at the end of last year, separate from $200 billion of assets held at the lending arm, according to Stifel.
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.
Bankruptcy laws state that companies under court protection are required to honor commitments to banking regulators “to maintain the capital of an insured depository institution.” That means the Federal Deposit Insurance Corp., as the receiver for Silicon Valley Bank, 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.
Other bankrupt financial companies successfully auctioned off their most valuable assets through bankruptcy, including Lehman Brothers in 2008.
Lehman’s U.S. investment banking arm was sold to Barclays BCS 2.21% PLC, while Nomura Holdings Inc. NMR -1.31% purchased the defunct firm’s Asia-Pacific and Europe franchises. Barclays paid around $2 billion and reported a paper gain on the deal of more than $4 billion two years later.