LONDON – Greensill Capital filed for insolvency protection on Monday, according to a person familiar with the company, days after regulators took over the banking division and Credit Suisse Group AG frozen investment funds critical to the startup’s operations.
Settlement has rippled to the holders of the Credit Suisse funds, German municipalities who have deposited money with Greensill’s bank, and a high-profile duo of venture capital investors.
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 once worth $ 4 billion based on SoftBank Group investments Corps
Vision Fund. The collapse marks a high-profile blow to the giant Japanese investor.
Founded by Australian-born Lex Greensill, the company profiled itself as a technology startup competing with traditional banks such as Citigroup Inc.
and JPMorgan Chase & Co. Greensill’s goal was to provide supply chain financing to companies that had fallen under the radar of traditional banks that favored larger, more established clients.
In a typical supply chain financing arrangement, 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 later. The supplier would be paid early, the company would have more flexibility over its cash and Greensill would be left with a small profit.
Rather than keeping the cash advances – which are typically renewed every 60 or 120 days – on the balance sheet like a traditional bank, Greensill has converted most of them into bond-style securities or notes.
Investment funds managed by Credit Suisse and GAM Holding AG
picked up those notes and offered professional investors a seemingly low-risk way to earn higher returns than could be achieved in bank accounts or money market funds. The funds essentially served as off-balance sheet financing for Greensill.
Greensill’s operations were seized last week when Credit Suisse prevented investors from taking money in or out of its $ 10 billion in supply chain investment funds. GAM followed the next day with its $ 800 million fund. Both have said they would phase out the funds.
Credit Suisse’s move was triggered after Greensill lost coverage from a range of credit insurers offering protection in case the startup’s clients defaulted.
The insurance was crucial because it made Greensill’s assets appear safer to Credit Suisse’s institutional investors, some of whom are not allowed to put money into riskier investments.
Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]
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