Sunday March 12, 2023
On Friday 10 March 2023 it was announced that the Bank of England intends to place Silicon Valley Bank UK Limited (SBV UK) into a Bank Insolvency Procedure following the collapse of its parent company, Silicon Valley Bank, in the US.
The collapse of SVB in the US marked the largest failure of a bank since the 2008 financial crisis and has the potential to have far reaching ramifications for businesses and financial institutions across the UK. This includes the many private equity investors and debt funds that have borrowing facilities with SVB UK, as well as the individual businesses that have funds deposited with the bank.
A Bank Insolvency Procedure would mean that eligible depositors are paid out by the Financial Services Compensation Scheme (FSCS) as quickly as possible, but only up to the protected limit of £85,000 for individual accounts or up to £170,000 for joint accounts. SVB UK’s other assets and liabilities would then be managed in the insolvency by the bank’s liquidators and recoveries distributed to creditors.
Who is affected and what should they do next?
SVB UK has a large footprint and lends to a number of institutions, including private equity and debt funds, and businesses predominantly across the technology and life sciences sectors.
For those businesses with deposited funds, management teams should immediately assess the short to medium term impact on their liquidity as there will be uncertainty as to the timing and quantum of any recoveries over and above the FSCS protection limits.
For borrowers, restrictions will likely be put in place preventing access to further funds, even where there are committed facilities in place. The prospect of any new lending is also unlikely, and some borrowers may need to rapidly put in place contingency plans to repay existing debt.
When assessing their risk and exposure, businesses in the UK should also look beyond their own balance sheets and evaluate the impact that the collapse has had on their investors, key customers and across their supply chains, some of which may also have significant exposures to SVB UK.
Where to seek support
Whilst the collapse of SVB UK undoubtedly presents a significant challenge for those impacted, there remain a number of funding options available in the market.
Businesses seeking replacement funding can look to the M&A and debt advisory markets for further support. These markets remain liquid and very active, and both funders and buyers will be keen to invest in and help those business with strong growth plans that simply need support to manage the fallout of the collapse.
At FRP, we are continuing to support clients through our specialist restructuring, financial advisory and corporate finance teams and are helping clients to navigate the challenges faced as a result of the collapse, ensuring they have the right solution in place to protect, grow and realise the value of their business.