Silicon Valley Bank - what happens now?
On 10 March 2023, the Bank of England (the BoE) stated that “absent any meaningful further information” it intended to apply to put SVB UK into Bank Insolvency, which is a modified version of liquidation under Part 2 of the Banking Act 2009 on Sunday 12 March 2023.
On the morning of Monday 13 March 2023, the BoE released a further statement informing the market that:
- the BoE had taken the decision to implement the Sale;
- SVB UK’s business will continue to be operated normally by SVB UK. All services will continue to operate as normal and customers should not notice any changes;
- all depositors’ money with SVB UK is safe and secure as a result of the Sale;
- no taxpayer money is involved; and
- SVB UK’s staff remain employed by SVB UK, and SVB UK continues to be a PRA/FCA authorised bank.
The banking operations of Silicon Valley Bank in the United States are carried out through a different entity from SVB UK. On 10 March 2023, the California Department of Financial Protection and Innovation appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of Silicon Valley Bank (a Californian public corporation). The FDIC transferred all deposits—both insured and uninsured—and substantially all assets of Silicon Valley Bank’s US operations to a newly created, full-service FDIC-operated "bridge bank" in an action designed to protect all US depositors. The impact of the FDIC receivership on Silicon Valley Bank is beyond the scope of this note as this will largely be governed by federal and state law in the United States. However, should any clients require US law advice we are happy to suggest US counsel who may be able to advise.
- On 13 March 2023, HSBC released an announcement (the Announcement) that:
- the purchase price for the Sale was £1, payable on completion and funded from existing resources;
- a final calculation of the gain arising from the Sale would be provided in due course;
- the assets and liabilities of SVB UK’s parent companies are excluded from the Sale; and
- HSBC will update shareholders further in its Q1 2023 results.
- The Sale has been effected by HM Treasury and the BoE using a "tool" available to them under the Special Resolution Regime for banks.
- The Announcement attaches a "mandatory reduction and share transfer instrument" (Instrument) setting out the terms of the Sale.
- In essence, subordinated debt securities issued by SVB UK for regulatory capital purposes (Subordinated Debt Securities) have been written down and the shares in SVB UK have been transferred to HSBC.
- The Instrument does not specifically state what happens to SVB UK’s assets and liabilities as part of the sale (other than the write down of the Subordinated Debt Securities). However, as the Sale was effected by way of a share transfer we assume that all assets and liabilities (other than the write down of the Subordinated Debt Securities) remain intact. We expect this to be clarified in due course, but we expect SVB UK’s to fulfil fund lending commitments in accordance with the terms of the relevant facility agreement and to permit withdrawals from accounts in accordance with the terms of the account and (if applicable) any security over that account.
- Yes. The Announcement states that all deposits are "safe and secure" and that “customers can continue to contact SVB UK through the usual channels”.
- There may be slight delays with access to funds given the state of flux caused by the Sale, although we are aware of clients being able to access funds during the course of 13 March 2023. We expect that any current practical access with the timing of release of funds will be resolved over the coming days
- Contact your usual person at SVB UK. As per the announcement, contact can be made through the "usual channels" to resolve this.
- The Announcement states that “borrowers should make any loan repayments to SVB UK as normal”.
- Consequently, all repayments should be made in accordance with the terms of the underlying loan agreement, and into the same account as any previous repayments
- The Sale should not allow SVB UK to impose any more onerous or different terms to your loan agreement.
- Clearly terms could differ if you look to renew or refinance your loan with SVB UK at a later date. We can however propose alternative lenders or put you in touch with advisory firms, if this happens.
- The terms will need to be reviewed. However, SVB UK did not formally enter into any insolvency process so it is likely that any typical insolvency-related triggers do not apply.
- The Sale was effected via the Special Resolution Regime for banks, so whether the use of such powers in relation to SVB UK is a trigger under the relevant agreement will need to be checked.
- Specific advice from a US law firm should be obtained. However, the FDIC announcement regarding SVB US states that:
“depositors will have full access to their money beginning [on the morning of 13 March 2023], when Silicon Valley Bridge Bank, N.A., the bridge bank, opens and resumes normal banking hours and activities, including online banking. Depositors and borrowers will automatically become customers of Silicon Valley Bridge Bank, N.A. and will have customer service and access to their funds by ATM, debit cards, and writing checks in the same manner as before. Silicon Valley Bank’s official checks will continue to clear. Loan customers should continue making loan payments as usual.”
- It therefore appears that (similar to the position in the UK) SVB’s US operations are being maintained on a largely “business as usual basis”.
- No. As above, payments should just be made via the agent under the facility agreement in the usual way.
- The precise terms would need to be checked. However, it is unlikely that SVB UK will meet the requirements for a “Defaulting Lender” given that it avoided formal insolvency and continues to make and accept payments.
- SVB UK will continue to receive and administer payments so there should be no change. It is also unlikely that SVB UK will meet the requirements for an “Impaired Agent” under the agreement.
- Although SVB US may be named as the lender under your facility agreement, the business, assets and liabilities of the former London branch of SVB US were transferred to SVB UK as part of a scheme of arrangement in August 2022. Accordingly, it should be checked if your lender is now SVB UK.
- However, if your lender is SVB US we expect that any funding requests will not be fulfilled. Liabilities will continue to be owed to SVB US under the relevant facility or credit agreement. Specific legal advice may be needed. Depend on the governing law of the facility or credit agreement this may require advice from a US law firm.
- It is too early to say whether SVB UK’s credit appetite for renewals and/or new facilities will be impacted by the Sale. We would expect some change over time but you should speak to your usual SVB contact as soon as possible to understand their approach to new lending, including renewals.
- It is understandable that you may want to diversify your banking relationships. However, where accounts are maintained with SVB UK in connection with a lending arrangement it is likely that those accounts will be subject to security and covenants in the relevant facility agreement requiring certain payments, such as capital calls from limited partners, to be paid into those accounts. References to specific accounts with SVB UK may also be hardcoded into the facility agreement. In these cases, SVB UK’s consent will be needed to move the accounts to another bank, amend the relevant facility agreement and/or enter into new security arrangement over the new accounts.
- Facility agreements with SVB UK may require the borrower and/or affiliated entities to maintain its main operational accounts with SVB UK. However, this is usually subject to a caveat that SVB UK meets the borrower’s and/or its affiliated entities’ operational requirements or that SVB UK’s provision of accounts be competitive with other banks.
- “Eligible persons” who held “eligible deposits” in excess of the £85,000 threshold for compensation by the FSCS will rank as preferential creditors (i.e. ahead of ordinary unsecured debts) in respect of the uncompensated excess. However, “eligible persons” are limited to micro, small and medium enterprises determined by references to annual turnover. Enterprises which are linked together (including by 25% or more of share ownership) will, subject to certain exceptions, have their turnover aggregated together. Accordingly, a small company within a larger corporate group will typically not rank as a preferential creditor for its uncompensated deposits. It will not therefore be possible to use a SPV to hold an account in order to improve your ranking on any bank insolvency.
For more information regarding the entry of SVB UK into potential insolvency, see our previous article.