Greensill Discussing Insolvency After Credit Suisse Freeze
Greensill Discussing Insolvency After Credit Suisse Fund Freeze
(Bloomberg) -- Greensill Capital is considering filing for insolvency after Credit Suisse Group AG froze $10 billion worth of investment funds that Lex Greensill’s trade finance firm had relied on as buyers of the debt securities it issues.
The firm has internally discussed filing for insolvency within days, according to people briefed on the matter. It’s simultaneously in talks on a sale of its operating business to Apollo Global Management Inc., according to one person.
Greensill Capital on Tuesday made use of so-called “safe harbor protection” that’s allowed under Australian insolvency laws, according to another person familiar with the matter. The move effectively buys directors more time to work out alternative financing as it protects them from personal liability for insolvent trading.
Officials for Greensill and Apollo declined to comment.
The discussions follow the decision by Credit Suisse on Monday to freeze a group of supply-chain-finance funds that it ran with help from the financier, citing “considerable uncertainty” about the valuations of some of the holdings. The freeze deprives Greensill of a large buyer for his assets at the same time as regulators in Germany put pressure on his bank to diversify its holdings.
The dramatic developments cap almost three years of trouble for Greensill Capital, a startup lender aiming to disrupt a niche part of global finance. Greensill-linked financings played a role in the demise of a former star bond manager at GAM Holding AG in 2018. Last year, Germany’s banking regulator BaFin pressured the financier’s lender to reduce concentration risks on its balance sheet.
In each case, Greensill’s exposure to U.K. industrialist Sanjeev Gupta -- an early client of his trade finance firm -- played a key role.
In a sign that other backers of Greensill have growing concerns about the business, SoftBank Group Corp.’s Vision Fund has substantially written down its $1.5 billion holding in Greensill Capital, and is considering dropping the valuation to close to zero, people familiar with the matter said. The writedown occurred at the end of last year, said one person.
The Credit Suisse funds are crucial to Greensill’s business, who relies on them along with his German bank to buy financings that Greensill Capital arranges. After an internal review last year, Credit Suisse overhauled the funds’ investment guidelines to limit how much exposure they can have to a single borrower.
“Greensill acknowledges the decision by Credit Suisse to temporarily gate the two Supply Chain Finance Funds dealing in Greensill-sourced assets,” a spokesperson for the firm said earlier Monday by email. “We remain in advanced talks with potential outside investors in our company and hope to be able to update further on that process imminently.”
News of a potential insolvency filing was reported earlier by Dow Jones, which said Greensill was also discussing a sale of its operating business to Apollo for about $100 million.
In October, Greensill had been considering a capital raising that would have valued it at $7 billion. At the time, when its banking arm was facing regulatory scrutiny and clients had hit financial difficulties, the firm said that the fund-raising would help boost growth.
Read more: Greensill Bank Looks to Raise Cash, Cut Risk to Sanjeev Gupta
Credit Suisse had been looking at ways to reduce its ties to Greensill, people familiar with the matter said. The bank is considering winding down the investments packaged by Greensill, replacing the firm as the main source for the assets, or moving loans to firms linked to Gupta out of its supply-chain finance funds, the people said, asking for anonymity because a decision hasn’t been made yet.
In Germany, meanwhile, BaFin has been pressuring Greensill Bank to reduce the concentration of assets linked to Gupta, Bloomberg reported in August. The bank has been seeking to raise money and cut its exposure to companies linked to the U.K. industrialist, people familiar with the matter have said.
Securities linked to Gupta and arranged by Greensill were among investments at the center of a 2018 crisis at GAM that brought down star trader Tim Haywood. While assets managed in GAM’s supply-chain finance funds were relatively short-term, it took almost a year to liquidate some longer-term loans to Gupta held in different funds.
It’s unclear how much of the Credit Suisse supply-chain finance funds are currently tied up with Gupta.
Credit Suisse is the latest firm to suspend or freeze funds related to hard-to-value or illiquid investments. Famed U.K. stock picker Neil Woodford ploughed large amounts into unlisted or thinly-traded companies and was forced to freeze his funds to allow for an orderly liquidation. H2O Asset Management also had to freeze funds under pressure from the French regulator because of illiquid investments tied to German financier Lars Windhorst.
From the archive: A QuickTake explainer on supply-chain finance.
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