LONDON – Greensill Capital filed for insolvency protection on Monday, 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 essential to the startup’s operations.
The disconnect intensified to Credit Suisse holders, German municipalities that deposited money with Greensill Bank and a high-profile duo of venture capitalists.
Greensill specializes 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 had once been worth $ 4 billion based on investments from SoftBank Group Body
Vision fund. The collapse marks an important blow for the mammoth Japanese investor.
Founded by Australian-born Lex Greensill, the company designed itself as a technology startup that competed with traditional banks such as Citigroup Inc.
and the goal of JPMorgan Chase & Co. Greensill was to provide financing in the supply chain to companies that had fallen under the radar of traditional banks that preferred a larger and more established clientele.
In a typical supply chain financing agreement, Greensill would pay a company’s suppliers earlier than would normally be expected, but at a discount. The company would then pay Greensill the full amount on the way. The supplier would have paid early, the company would have more flexibility in terms of its cash, and Greensill would remain at a low profit.
Instead of holding cash advances – which are usually renewed every 60 or 120 days – on its balance sheet, like a traditional bank, Greensill turned most of them into bonds or notes.
Investment funds managed by Credit Suisse and GAM Holding AG
gathered those notes, offering clients professional investors what appeared to be a low-risk way to get higher returns than could be obtained in bank accounts or money market funds. The funds essentially served as off-balance sheet financing for Greensill.
Greensill’s operations were confiscated last week, when Credit Suisse stopped investors from collecting or withdrawing money from the $ 10 billion in investment funds in the supply chain. GAM followed suit the next day with its $ 800 million fund. Both said they would liquidate the funds.
The Credit Suisse movement was launched after Greensill lost coverage to a set of credit insurers who offered protection in case the startup’s customers went bankrupt.
Insurance was crucial because it made Greensill’s assets seem safer for Credit Suisse’s institutional investors, some of whom have restrictions on investing cash in riskier investments.
Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]
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