Dying banks aren’t bad news to everybody. For some investors, they are a chance to make money.
(Bloomberg) — Dying banks aren’t bad news to everybody. For some investors, they are a chance to make money.
Appaloosa Management, Centerbridge Partners and Silver Point Capital are among the titans of distressed debt investing pushing for big payouts in the bankruptcy case of the former owner of Silicon Valley Bank, new court papers show.
A group of eight firms holds more than $1.1 billion in senior notes and roughly $1.5 billion worth of preferred equity issued by SVB Financial Group, the holding company that went bust after a run on its bank earlier this year. By banding together and sharing the cost of attorneys and financial advisers, such groups can have enormous sway in major corporate bankruptcy cases.
Appaloosa holds $345 million worth of SVB debt, Silver Point $231.7 million and Centerbridge $199.8 million, according to the court filings. The other companies in the group are Citigroup’s distressed trading desk, Millennium Management, Citadel, Attestor and Redwood Capital Management.
Together, the group holds 35% of the $3.3 billion in senior notes SVB issued and 41% of the preferred stock. When such panels hold more than 34% of any class of debt, they often have veto power over any payout plan they oppose.
Distressed debt professionals rarely invest in the stock of bankrupt companies because shares are canceled in most Chapter 11 cases. In SVB, stock owners could get tax benefits from about $6.4 billion in net operating losses. Should SVB be reorganized and survive the bankruptcy case in some form, stockholders could use those losses to reduce their future federal income tax liabilities.
SVB filed for bankruptcy in March after the Federal Deposit Insurance Corporation placed its bank into receivership. Since then, a dispute has been simmering over whether SVB and its creditors can get back about $2 billion in cash the holding company had on deposit that was sent to the FDIC.
What happens to the money will need to be decided in the coming months, with lawyers for bondholders owed more than $3.3 billion saying they are concerned that the FDIC will try to keep the cash.
In a court hearing in March shortly after SVB filed for Chapter 11 bankruptcy protection, lawyers for Appaloosa complained about an initial FDIC decision to lock down the $2 billion.
The bankruptcy case is SVB Financial Group, 23-10367, US Bankruptcy Court for the Southern District of New York.
(Updates with additional details starting in fourth paragraph; potential tax benefits of investing in SVB’s bankruptcy in sixth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.