SVB Financial, the former parent company of Silicon Valley Bank, plans to transfer its remaining venture capital operations to a new entity backed by key creditors while continuing its legal fight against U.S. regulators’ seizure of nearly $2 billion in cash reserves, the company announced Tuesday.
SVB Financial reached a restructuring deal with creditors focused on creating a new company that would hold the firm’s venture capital arm, SVB Capital, and tax attributes that could be worth billions of dollars, according to documents filed at a U.S. bankruptcy court in Manhattan.
The restructuring agreement is tentative and requires court approval; however, it ends SVB’s search for a buyer for its venture capital unit.
“We believe that retaining SVB Capital under a reorganized company is the best path forward to maximize its value in the current environment,” William Kosturos, chief restructuring officer of SVB Financial, said in a statement.
SVB Financial filed for Chapter 11 bankruptcy protection in March following the collapse of SVB. The move would allow the company “to preserve value as it evaluates strategic alternatives for its prized businesses and assets” — primarily, venture-capital business SVB Capital and broker-dealer SVB Securities, Kosturos said in a statement at the time.
In July, SVB Financial received approval to sell SVB’s investment-banking arm to a management group that included the business’ founder, Jeff Leerink.
Aaron Gershenberg, co-founder of SVB Capital, will return to join managing partners Sulu Mamdani and Beau Laskey to co-lead the venture capital business. The operating committee will aim to maximize SVB Capital’s portfolio while continuing to serve its limited partners, the company said.
The firm evaluated divesting its venture capital operations but concluded that retaining the unit would likely prove more valuable than the bids received. Advisers estimated the present value of the venture capital division at $572 million — exceeding their top offer by roughly $55 million, Bloomberg reported.
The restructuring deal also involves placing other assets like cash and securities in a trust backed by creditors and must include a bankruptcy exit plan. However, a U.S. bankruptcy court should approve the proposal before it becomes final, Reuters noted.
MFN Partners, Pacific Investment Management Company, Bank of America Securities, JPMorgan Securities and King Street Capital — the coalition backing the deal — hold roughly 48% of SVB Financial’s most senior debt, the wire service said.
The firm’s venture capital arm manages roughly $10 billion in investments for around 750 limited partner investors, including public pensions, which have added capital to the investment fund, according to the court documents.
The restructuring agreement would also establish a new corporate entity that would continue SVB Financial’s litigation with the Federal Deposit Insurance Corp. over the seized cash, the outlet said.
“Right now, not only has the bank been taken, but all of the cash has been taken,” James Bromley, a lawyer for SVB Financial Group, said at the first hearing in a bankruptcy court in March.
However, the FDIC disagreed and has said the company’s cash could be seized to pay the cost of bailing out the failed bank, according to Reuters.
