- In this note we provide an update on certain activity in the SVB HoldCo bankruptcy case.
- SVB HoldCo is working closely with its creditor constituencies on a plan of reorganization and should be in a position to provide a more fulsome update in the near future. Moreover, SVB HoldCo continues to work on a strategic alternative for SVB Capital, and no decisions have been made.
- On the litigation front, the U.S. District Court for the Southern District of New York granted the FDIC’s motion to “withdraw the reference,” which means SVB HoldCo’s litigation against the FDIC-C seeking payment of approximately $1.9 bn on account of its deposit will be transferred to the district court. The District Court intends to hold a status conference on December 20 to address the schedule for pending motions to dismiss.
- We also provide a short update and refinement on our valuation framework based on publicly available information.
General Update on Bankruptcy Case
At a hearing on December 14, 2023, SVB Financial Group (“SVB HoldCo”) gave the U.S. Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) a short, 3-minute update on several matters in its chapter 11 case. Specifically, SVB HoldCo is working closely with its creditor constituencies on a plan of reorganization and should be in a position to provide a more fulsome update in the near future. Moreover, SVB HoldCo continues to work on a strategic alternative for SVB Capital, and no decisions have been made.
Short Update on Litigation with the FDIC
We generally view SVB HoldCo as having three alternative paths for recovering on its approximately $1.9 bn deposit (the “Deposit”) at SVB Bank. We discuss each pathway and provide an update as follows:
- The first path involved filing a claim with the FDIC receivership, which SVB HoldCo did on July 10, 2023. The FDIC has 180 days to determine whether to allow or disallow the claim, and we therefore have no update on this path.
- The second path involved SVB HoldCo sending a demand letter on June 26, 2023 to the FDIC-C (in its corporate capacity) seeking payment of the Deposit. The FDIC rejected the demand on October 20, 2023. See US Bankruptcy: FDIC denies SVB Financial’s claim for $1.929bn deposit. The rejection letter indicates that SVB HoldCo must seek judicial review of this decision within 60 days, which is December 19, 2023. We have no further update on this pathway but would expect SVB HoldCo to seek judicial review imminently.
- The third path involved affirmative litigation that was commenced by SVB HoldCo against the FDIC in the Bankruptcy Court seeking, among other things, turnover of the Deposit. See SVB HoldCo Sues FDIC-C, FDIC-R. On August 11, 2023, the FDIC filed motions to dismiss in each of its capacities, arguing, among other things, that the Bankruptcy Court has no subject matter jurisdiction to adjudicate the dispute and that SVB HoldCo failed to exhaust the claims process in the receivership (path one, above) established by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. See SVB HoldCo: More Shots Fired. On August 15, 2023, the FDIC also moved to “withdraw the reference,” which sought to move the litigation to the U.S. District Court for the Southern District of New York (the “District Court”). On December 13, 2023, the District Court granted the motion. The District Court will now hold a status conference on December 20, 2023, to schedule arguments on the pending motion to dismiss and to address related matters. We expect arguments to take place early next year.
Thoughts and Takeaways
SVB HoldCo has given the public and the markets few updates over the last several months, although professionals for SVB HoldCo and the other parties have consistently informed the Bankruptcy Court that they are working behind the scenes to formulate a plan of reorganization and address issues related to tax attributes. The long story short is that there hasn’t been much to update. Indeed, SVB HoldCo has said for almost six straight months that a plan of reorganization is imminent, yet we have not seen one. We expect much of the delay is tied to both litigation setbacks and issues related to conversations and discussions with the IRS about SVB HoldCo’s tax attributes. We hope to be in a position to provide a more fulsome update in the near future, and we expect updates on each of the three recovery paths discussed above to occur very early in the new year as evidenced by the various noted deadlines.
We also observe that bondholders must be understandably frustrated by this delay and risk to the deposit has had on implied recoveries. We have heard complaints from bondholders in the market that had the estate merely liquidated its assets and distributed them pro-rata to all depositors, bondholders may have ultimately done significantly better without the FDIC’s extraordinary activities back in March. On that score, we took a look at the most recently published balance sheets of the receivership estates for Silicon Valley Bank and Silicon Valley Bridge Bank, and calculated a theoretical liquidation value espoused by those complaints and conclude that uninsured depositors would have received a pro-rata estimated recovery of 93%. Of course, we have no exceptional insight into the workout process so far at the receivership estate, or the accuracy of the FDIC’s “Estimated Loss on Assets in Liquidation,” so this is based solely on a review of publicly available balance sheets as noted below:
Additionally, we note that we believe that the various committees have a list of the venture warrant portfolio that is quite possibly most of the value at SVB Capital — we do not have that portfolio (it has been redacted in public filings) but believe that knowing the warrant portfolio would add a great deal of certainty to the valuation of SVB Capital. Finally, we ascribe substantial value to the “Investments in SVB Capital Funds,” in the monthly operating report under the assumption that these holdings are regular-way investment holdings and not management interests.
Senior Special Situations Analyst
Mark Lightner, Esq.
Head of Special Situations Legal Research
Head of Banks
Peter Simon, CFA
Head of Brokers and Regional Banks
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