LONDON – Greensill Capital on Monday introduced insolvency protection, according to a person familiar with the company, days after regulators took over its banking unit and Credit Suisse Group AG froze investment funds that were crucial to the company’s operations. startup.
The development has taken place in the holders of Credit Suisse funds, the German municipalities that deposited money in the Greensill bank and a duo of high-profile venture capitalists.
Greensill specialized in supply chain financing, a type of short-term cash advance to companies to extend the time they have to pay their bills. The company was valued at $ 4 billion, based on the SoftBank Group’s investments Corp.
Vision Fund. The collapse is a huge blow to the huge Japanese investor.
Founded by Australian-born Lex Greensill, the company introduced itself as a technology startup that competed with traditional banks such as Citigroup. Inc.
and the goal of JPMorgan Chase & Co. Greensill was to offer supply chain financing to companies that had fallen below the radar of traditional banks that preferred a larger, more established clientele.
In a typical supply chain financing agreement, 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 for the road. The supplier would be paid sooner, the company would have more flexibility over its cash, and Greensill would be left with a small profit.
Instead of keeping cash advances — which are usually renewed every 60 or 120 days — on their balance sheet, like a traditional bank, Greensill turned them into most securities or bonds.
Investment funds managed by Credit Suisse and GAM Holding AG
collected these notes, providing clients with professional investors what appeared to be a low-risk way to obtain higher returns than could be obtained in bank accounts or money market funds. In essence, the funds served as off-balance sheet financing for Greensill.
Greensill’s operations were confiscated last week when Credit Suisse prevented investors from entering or leaving the $ 10 billion in supply chain investment funds. GAM followed suit the next day with its $ 800 million fund. Both have said they would settle the funds.
The Credit Suisse move was triggered after Greensill lost coverage to a set of credit insurers that provided protection in the event of the startup’s customers defaulting.
Insurance was crucial, as it made Greensill’s assets seem safer for Credit Suisse’s institutional investors, some of whom have restrictions on putting money into riskier investments.
Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]
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