LONDON – Greensill Capital filed for insolvency protection on Monday, according to a person familiar with the company, days after regulators took over its bank unit and Credit Suisse Group AG froze investment funds that were essential to startup operations.
The developments reached Credit Suisse fund holders, the German municipalities that deposited money at Greensill’s bank and a pair of high-profile venture capital investors.
Greensill specializes in supply chain finance, a type of short-term cash advance for companies to extend the time they have to pay their bills. The company has already been worth $ 4 billion based on investments from the SoftBank Group Body
Vision Fund. The collapse marks a high-profile blow for the giant Japanese investor.
Founded by Australian Lex Greensill, the company called itself a technology startup that competed with traditional banks like Citigroup Inc.
and JPMorgan Chase & Co. Greensill’s goal was to offer supply chain finance to companies that had fallen under the radar of traditional banks that preferred a larger, more established clientele.
In a typical supply chain finance deal, Greensill would pay a company’s suppliers earlier than they would normally expect, but at a discount. The company would then pay Greensill the full amount in the future. The supplier would be paid in advance, the company would have more flexibility in its cash and Greensill would have a small profit.
Instead of keeping cash advances – which are usually renewed every 60 or 120 days – on your balance sheet like a traditional bank, Greensill turned most of them into bond-like bonds, or notes.
Investment funds managed by Credit Suisse and GAM Holding AG
he collected these notes, providing professional investor clients with what appeared to be a low-risk way of obtaining higher returns than those obtained from bank accounts or money market funds. The funds basically served as off-balance sheet financing for Greensill.
Greensill’s operations were halted last week when Credit Suisse prevented investors from receiving or withdrawing money from the $ 10 billion supply chain investment fund. GAM did the same the next day with its $ 800 million fund. Both said they would reduce the funds.
Credit Suisse’s move was triggered after Greensill lost coverage to a number of credit insurers that provided protection in the event of default by the startup’s customers.
The insurance was crucial because it made Greensill’s assets look more secure to Credit Suisse’s institutional investors, some of whom are prevented from putting money into riskier investments.
Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]
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