Greensill Capital faces possible insolvency after Credit Suisse suspends investment funds: WSJ

Specialized finance firm Greensill Capital was heading for a rapid collapse after Credit Suisse Group AG suspended $ 10 billion in investment funds that fed the startup supported by SoftBank Group Corp.

Ticker	Safety	Last	Change	Change %
CS	CREDIT SUISSE GROUP AG	14.70	+0.25	+ 1.73%
9984	n / a	n / a	n / a	n / a
F	FORD MOTOR CO.	11.98	+0.28	+ 2.39%
APO	APOLLO GLOBAL MGMT	50.38	+0.92	+ 1.86%
AZN	ASTRAZENECA PLC	48.09	-0.29	-0.60%
F	FORD MOTOR CO.	11.98	+0.28	+ 2.39%

With a major source of funding frozen, Greensill appointed Grant Thornton to guide her through possible restructuring, and could file for insolvency, the UK equivalent of bankruptcy, in a few days, according to people familiar with the company. .

Greensill is simultaneously in talks with private equity giant Apollo Global Management Inc. to sell its operating businesses for about $ 100 million, according to people familiar with the negotiations. Although a deal was not for all of Greensill’s assets, the figure represents a slice of its peak valuation of $ 4 billion.

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UK-based Greensill is the brainchild of former Citigroup Inc. and Morgan Stanley financier Lex Greensill. Founded in 2011, Greensill specializes in an area known as supply chain finance, a form of short-term cash advance that allows companies to extend the time they have to pay their bills.

Greensill packages these cash advances into bond-like bonds that offer investors a higher return than they could get from bank deposits. Credit Suisse’s funds were a major buyer of these bonds, giving Greensill the firepower to expand its business. Fund investors include pensions, corporate treasurers and wealthy families.

Greensill’s problems peaked on Monday after Credit Suisse said it would prevent investors from buying or selling four private investment funds that rely solely on securities created by Greensill.

Credit Suisse froze the funds because some assets in them are “currently subject to considerable uncertainties regarding their accurate valuation”, according to a notice the bank sent to investors.

The Wall Street Journal reported on Sunday that the bank was concerned about Greensill’s exposure to a single customer, the UK-based steel magnate Sanjeev Gupta, according to people familiar with the matter.

Mr. Gupta is a former Greensill shareholder and Greensill provided funding for the Gupta group of companies GFTA Alliance, which created a metal empire by acquiring failed steelmakers and other struggling industrial businesses.

Last month, an offer by one of Gupta’s companies to acquire Germany’s Thyssenkrupp AG steel operations failed after the latter ended negotiations on a deal.

German banking regulator BaFin last year began examining the links between Gupta’s business and Greensill’s German banking unit, according to a person familiar with the investigation. The regulator was concerned that Greensill Bank had too much exposure to Gupta’s business.

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Another factor in Credit Suisse’s decision to suspend funds: Greensill’s insurance policies, which offer protection in the event of an asset default, have expired in recent days, according to people familiar with the matter. Greensill’s business model relied heavily on credit insurance to give investors the comfort that their money was safe.

A Greensill spokesman said the company recognized Credit Suisse’s decision and that Greensill is still in advanced negotiations with potential outside investors.

Negotiations are ongoing with Apollo. If a deal is struck, the private equity firm will try to engage with dozens of Greensill borrowers within a few days, including a collection of top-tier companies and government agencies like the UK’s National Health Service, according to people familiar with conversations.

Funding for these businesses would come from Apollo’s insurance customers, including Athene Holding Ltd., the insurance company in which Apollo has a stake, according to the people. Insurance customers are not interested in assets linked to Gupta, people added.

Greensill portrayed itself as a fragmented technology startup, more agile than boring banks. He has former UK Prime Minister David Cameron as an adviser. It owns a bank in Germany and does business closer to traditional commercial bank services, such as loans for large investment projects.

In supply chain financing, Greensill competes with traditional banks like Citigroup and JPMorgan Chase & Co. for investment-grade customers. Some of Greensill’s most important customers include AstraZeneca PLC and Ford Motor Co. Greensill has also extended financing to lesser-known companies, including small start-ups and companies that are considered to be high risk borrowers.

In a typical supply chain finance business, Greensill pays a company’s suppliers earlier than they would normally expect, but at a discount. The company then pays Greensill the full amount in the future. The supplier is paid in advance, the company has more flexibility over its cash and Greensill is left with a small profit.

It attracted capital from SoftBank’s giant Vision Fund, which raised $ 1.5 billion, giving it a $ 4 billion valuation. A person familiar with the Vision Fund said that it is expected to reduce its entire investment.

Credit Suisse’s decision to cut Greensill’s funds limits a challenging stretch for the financing novice. Greensill’s total financing business was stable last year at $ 143 billion, well below its target. Several Greensill customers have faced financial problems, while the companies with which she has associated with loosened ties.

Greensill recently tried to raise up to $ 1 billion in capital that would have valued the company at $ 7 billion. This process was halted while the company sought to resolve problems related to its exposure to Gupta’s business, according to people familiar with fundraising.

It is not Greensill’s first encounter with a suspension of funds. In July 2018, Swiss asset manager GAM Holding AG froze a $ 12 billion fund after an insider raised concerns about how the fund valued Greensill’s assets. This included hundreds of millions of dollars in illiquid assets linked to Mr. Gupta’s business.

The suspension did not stop Greensill from expanding. After GAM’s funds declined, Credit Suisse’s funds grew rapidly, giving the startup a new pool of investors that fueled its ability to do supply chain financing deals.

Greensill’s problems can be painful for SoftBank. The company boosted other holdings in the Vision Fund, extending short-term financing to them.

Not all of these businesses worked. In December, Greensill forgave $ 435 million in financing for construction startup Katerra, around the same time that Vision Fund invested an additional $ 200 million to keep it afloat. In return, Greensill received a 5% stake in Katerra. Last month, a Greensill spokesman said investors did not incur losses related to Katerra.

The investee of Vision Fund, Fair Financial Corp., a self-financing company, and View Inc., a glass manufacturer, also received financing from Greensill.

SoftBank’s multifaceted roles in Greensill were not without controversy. In addition to investing in Greensill itself and receiving funds from Greensill through its portfolio companies, SoftBank invested $ 700 million in Greensill funds managed by Credit Suisse.

Last year, Credit Suisse executives were concerned about potential conflicts of interest related to SoftBank’s functions. SoftBank eventually redeemed its stake in Credit Suisse’s funds, and Credit Suisse told investors that it was “committed to taking measures to further protect them”.

For Credit Suisse, fund suspensions are the latest setback for its asset management division. The unit, which manages about $ 480 billion, assumed a $ 450 million loss charge on a stake in investment manager York Capital Management after York reduced its operations, helping to push Credit Suisse to a loss in the fourth trimester.

Swiss financial regulator Finma said on Monday that he is in contact with Credit Suisse about fund suspensions, but declined to comment further.