SVB Financial Files for Bankruptcy Under Chapter 11
Written by Jahnvi Patel, MAZURKRAEMER LAW CLERK, Villanova School of Law, JD/MBA Candidate
The case is SVB Financial Group, 23-10367, U.S. Bankruptcy Court for the Southern District of New York.
On March 17, 2023, Silicon Valley Bank's (“SVB”) parent company declared bankruptcy, easing the sale of its remaining assets after federal regulators seized the technology-focused bank at the heart of its business. SVB Financial Group filed for chapter 11 bankruptcy protection in New York on Friday, the largest bankruptcy filing resulting from a bank failure since Washington Mutual Inc. in 2008.
According to court filings, SVB Financial has $3.4 billion in debt and manages approximately $9.5 billion in other investors' money across its portfolio of venture capital and credit funds. Silicon Valley Bank was SVB Financial's largest asset, accounting for more than $15.5 billion of the company's total assets of $19.7 billion.
At a bankruptcy court hearing, SVB Financial Group and the federal regulator that closed its Silicon Valley Bank unit indicated that a fight is looming over $2 billion in cash seized along with the lender. SVB Financial, which declared bankruptcy, claimed in court papers that the Federal Deposit Insurance Corporation took "improper actions" to cut the parent company off from cash held at its former subsidiary, which regulators seized to prevent a national bank run.
Because Silicon Valley Bank is a California-chartered commercial bank and a member of the Federal Reserve system, it is ineligible for bankruptcy and has been placed in receivership by the Federal Deposit Insurance Corp. However, its parent company may file in order to protect its remaining assets and work on repaying creditors, including bondholders.
The court-supervised process will be used by SVB Financial Group to evaluate strategic alternatives for SVB Capital, SVB Securities, and the Company's other assets and investments. This process is being led, as previously announced, by a five-member restructuring committee appointed by the SVB Financial Group Board of Directors. Centerview Partners LLC is assisting the restructuring committee with the strategic alternatives process, which is already underway and drawing a lot of attention. Any sale will take place through the Chapter 11 proceeding and will be subject to court approval.
"The Chapter 11 process will allow SVB Financial Group to preserve value while it evaluates strategic alternatives for its prized businesses and assets, particularly SVB Capital and SVB Securities," said William Kosturos, SVB Financial Group's Chief Restructuring Officer. "SVB Capital and SVB Securities will continue to operate and serve clients under the leadership of their long-standing and independent leadership teams." Mr. Kosturos continued, "SVB Financial Group will continue to collaborate with Silicon Valley Bridge Bank." "We are committed to finding practical solutions to maximize recoverable value for both entities' stakeholders."
The stock of SVB Financial has been suspended for the past two weeks. The company's March 8 disclosure of significant losses from securities sales and a planned stock offering shook the financial sector, fueling investor concerns about regional banks. This month, Silvergate Bank and Signature Bank both failed. Eleven major U.S. banks pledged $30 billion in total uninsured deposits to First Republic Bank FRC, -1.36% on Thursday in an effort to avert a second collapse.
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