The parent company of Silicon Valley Bank, SVB Financial Group, filed for chapter 11 bankruptcy on Friday in New York a week after the federal agency took control.
The filing will help SVB Financial Group get protection against its creditors, and administrators will help it cover the creditors’ claims by selling off assets.
However, Silicon Valley Bank is not affiliated with bankruptcy filing. Other than that, its venture capital arm SVB Capital, and the broker-dealer SVB Securities are not included in the filing. As an administrator, FDIC will unwind its private banking and wealth manager SVB Private.
Surprisingly, many hedge funds and asset managers have purchased discounted bonds from SVB Financial by overlooking the warning from federal agencies about the high risk associated with the investment.
In most cases, most assets sold from the bankrupt institution are directly used to compensate creditors. But, SVB Financial Group could be exceptional as its investors hold around $2.2bn in cash and liquid securities, $3.3bn of unsecured notes, and $3.7bn of preferred stock. To cover these losses, they may require additional help.