The specialized financial company Greensill Capital turned to a quick unraveling after Credit Suisse Group AG stopped $ 10 billion of investment funds that fueled the start-up, supported by SoftBank Group Corp.
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With a frozen key source of funding, Greensill has appointed Grant Thornton to guide it through a possible restructuring, and he could file for bankruptcy, the UK’s equivalent for bankruptcy, within days, according to insiders.
Greensill is also in talks with equity giant Apollo Global Management Inc. to sell its operating business for about $ 100 million, according to sources. Although the deal would not be for all of Greensill’s assets, the amount is part of its peak valuation of $ 4 billion.
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The UK-based Greensill is an idea of the former Citigroup Inc. and Morgan Stanley financier Lex Greensill. Founded in 2011, Greensill specializes in an area known as supply chain financing, a form of short-term cash advance that allows companies to extend the time they have to pay their bills.
Greensill packs these advance payments into bond securities, which give investors a higher return than they could receive from bank deposits. Credit Suisse’s funds were a major buyer of these securities, giving Greensill the firepower to expand its business. Investors in the funds include pensions, corporate treasurers and wealthy families.
Greensill’s problems emerged on Monday after Credit Suisse said it would stop investors from buying or selling four private equity funds that rely heavily on securities created by Greensill.
Credit Suisse froze the funds because “some of the assets in them are currently subject to significant uncertainty as to their exact valuation,” a statement sent by the bank to investors said.
The Wall Street Journal reported on Sunday that the bank was concerned about Greensill’s exposure to a client, UK-based steel tycoon Sanjeev Gupta, according to sources.
Mr. Gupta is a former shareholder of Greensill, and Greensill has provided funding to the GFG Alliance group of companies to Mr. Gupta, which has created an empire of metals by acquiring failed steel mills and other distressed industries.
Last month, an offer by one of Mr Gupta’s companies to acquire the steel operations of Germany’s Thyssenkrupp AG failed after the latter concluded negotiations on the deal.
German banking regulator BaFin last year began investigating links between Mr Gupta’s business and Greensill’s German banking unit, according to someone familiar with the probe. The regulator was concerned that Greensill Bank was too exposed to Mr Gupta’s business.
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Another factor in Credit Suisse’s decision to suspend the funds: Greensill’s insurance policies, which provide protection in the event of default on assets, have expired in recent days, according to some sources. Greensill’s business model relied heavily on such credit insurance to give investors the comfort that their money was safe.
A Greensill spokesman said the company had recognized Credit Suisse’s decision and that Greensill remained in advanced talks with potential outside investors.
Talks with Apollo continue. If a deal comes together, the private equity firm will try to take links with dozens of Greensill borrowers within days, including a collection of blue-chip companies and government agencies such as the UK’s National Health Service, according to people familiar with the conversation.
The financing of these deals will come from Apollo’s insurance clients, including Athena Holding OOD, the insurance company in which Apollo has a stake, according to people. Insurance clients are not interested in assets related to Mr. Gupta, the people added.
Greensill presents itself as a technology start-up, more agile than weak banks. He considers former British Prime Minister David Cameron an adviser. It owns a bank in Germany and carries out transactions that are closer to traditional commercial banking services, such as lending to large investment projects.
In supply chain financing, Greensill competes with traditional banks such as Citigroup and JPMorgan Chase & Co. for clients with investment class. Some of Greensill’s customers with blue chips include AstraZeneca PLC and Ford Motor Co. Greensill has also expanded funding to lesser-known companies, including small start-ups and companies that are considered higher-risk borrowers.
In a typical supply chain financing deal, Greensill pays the company’s suppliers earlier than they would normally expect, but at a discount. The company then pays Greensill the entire amount along the way. The provider gets paid earlier, the company has more flexibility in terms of its money and Greensill remains with a small profit.
He raised capital from SoftBank’s giant Vision fund, which invested $ 1.5 billion, giving him a valuation of $ 4 billion. A person familiar with the Vision Fund said he was expected to record his entire investment.
Credit Suisse’s decision to cut Greensill’s funds limits the challenge of the funding boom. Greensill’s total financial business last year was $ 143 billion, well below its target. Several Greensill customers are hitting financial trouble while companies partner with loose ties.
Recently, Greensill is trying to raise capital up to $ 1 billion, which would value the company at $ 7 billion. This process has stopped as the company seeks to address the problems associated with its exposure to Mr Gupta’s business, according to people familiar with fundraising.
This is not the first introduction of Greensill with the suspension of the fund. In July 2018, Swiss asset manager GAM Holding AG froze a $ 12 billion fund after an internal whistleblower raised concerns about how the fund valued Greensill’s assets. These include hundreds of millions of dollars of illiquid assets related to Mr. Gupta’s business.
The suspension did not prevent Greensill from expanding. Following the liquidation of GAM’s assets, Credit Suisse’s assets grew rapidly, giving the start-up a new fund of investors who fueled its ability to enter into supply chain financing transactions.
Greensill’s problems can be painful for SoftBank. The company performed turbo compression of other Vision Fund participations, extending their short-term financing.
Not all of these deals have happened. In December, Greensill forgave $ 435 million in funding to construction startup Katerra, while the Vision Fund invested an additional $ 200 million in it to keep it afloat. In return, Greensill received an approximately 5% stake in Katerra. A Greensill spokesman said last month that investors had not suffered any losses related to Katerra.
The Vision Fund invests in Fair Financial Corp., a car finance company, and View Inc., a glassmaker, also received funding from Greensill.
SoftBank’s multi-layered roles in Greensill have caused controversy. In addition to investing in Greensill itself and receiving funds from Greensill through its portfolio companies, SoftBank has 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 roles. Eventually, SoftBank bought its stake in Credit Suisse, and Credit Suisse told investors it was “committed to taking steps to provide additional protection.”
For Credit Suisse, the suspension of funds is the last hurdle for its asset management division. The unit, which manages about $ 480 billion, charged an impairment fee of $ 450 million on a stake in investment manager York Capital Management after York cut its operations, helping Credit Suisse lose in the fourth quarter.
Swiss financial regulator Finma said on Monday that it was in contact with Credit Suisse about the suspension of the fund, but declined to comment further.