Specialty finance firm Greensill Capital headed toward a rapid unraveling after Credit Suisse Group AG suspended $10 billion of investment funds that fueled the SoftBank Group Corp. -backed startup.
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With a key source of financing frozen, Greensill has appointed Grant Thornton to guide it through a possible restructuring, and it could file for insolvency, the U.K. equivalent of bankruptcy, within days, according to people familiar with the company.
Greensill is simultaneously in talks with private-equity giant Apollo Global Management Inc. to sell its operating business for around $100 million, according to people familiar with the talks. Though a deal wouldn’t be for all of Greensill’s assets, the amount represents a sliver of its peak valuation of $4 billion.
U.K.-based Greensill is the brainchild of former Citigroup Inc. and Morgan Stanley financier Lex Greensill. Founded in 2011, Greensill specializes in an area known as supply-chain finance, a form of short-term cash advance that lets companies stretch out the time they have to pay their bills.
Greensill packages those cash advances into bondlike securities that give investors a higher return than they could get from bank deposits. Credit Suisse’s funds were a major buyer of those securities, giving Greensill firepower to expand its business. Investors in the funds include pensions, corporate treasurers and wealthy families.
Greensill’s problems came to a head Monday after Credit Suisse said it would stop investors from buying or selling four private investment funds that rely exclusively on securities created by Greensill.
Credit Suisse froze the funds because some assets in them are “currently subject to considerable uncertainties with respect to their accurate valuation,” according to a notice the bank sent to investors.
The Wall Street Journal reported Sunday that the bank was concerned about Greensill’s exposure to a single client, U.K.-based steel magnate Sanjeev Gupta, according to people familiar with the matter.
Mr. Gupta is a former Greensill shareholder and Greensill has supplied financing to Mr. Gupta’s GFG Alliance group of companies, which created a metals empire by acquiring failed steel mills and other distressed industrial businesses.
Last month, a bid by one of Mr. Gupta’s companies to acquire the steel operations of Germany’s Thyssenkrupp AG failed after the latter company ended talks over a deal.
German banking regulator BaFin last year began examining ties between Mr. Gupta’s businesses and Greensill’s German banking unit, according to a person familiar with the probe. The regulator was concerned that Greensill Bank had too much exposure to Mr. Gupta’s businesses.
Another factor in Credit Suisse’s decision to suspend the funds: Greensill’s insurance policies, which provide protection in case assets default, lapsed in recent days, according to some of the people familiar with the matter. Greensill’s business model relied heavily on such credit insurance to give investors comfort that their money was safe.
A Greensill spokesperson said the company acknowledged Credit Suisse’s decision, and that Greensill remains in advanced talks with potential outside investors.
Talks are ongoing with Apollo. If a deal does come together, the private-equity firm would look to take over relationships with dozens of Greensill’s borrowers within days, including a collection of blue-chip companies and government agencies such as the U.K.’s National Health Service, according to people familiar with the talks.
Financing for those deals would come from Apollo’s insurance clients including Athene Holding Ltd., the insurance company in which Apollo holds a stake, according to the people. The insurance clients aren’t interested in assets tied to Mr. Gupta, the people added.
Greensill portrayed itself as a scrappy technology startup more nimble than stodgy banks. It counts former U.K. Prime Minister David Cameron as an adviser. It owns a bank in Germany and does deals that are closer to traditional merchant banking services, such as lending to large investment projects.
In supply-chain finance, Greensill competes with traditional banks such as Citigroup and JPMorgan Chase & Co. for investment-grade clients. Some of Greensill’s blue-chip clients include AstraZeneca PLC and Ford Motor Co. Greensill has also extended financing to lesser-known companies, including small startup businesses and companies that are considered higher-risk borrowers.
In a typical supply-chain finance deal, Greensill pays a company’s suppliers sooner than they would normally expect, but at a discount. The company then pays Greensill the full amount down the road. The supplier gets paid early, the company has more flexibility over its cash and Greensill is left with a small profit.
It attracted capital from SoftBank’s giant Vision Fund, which plowed in $1.5 billion, giving it a valuation of $4 billion. A person familiar with the Vision Fund said it is expected to write down its entire investment.
Credit Suisse’s move to cut off the Greensill funds caps a challenging stretch for the financing upstart. Greensill’s total financing business was flat last year at $143 billion, far below its target. Several Greensill clients hit financial troubles, while companies it partnered with loosened ties.
Greensill has recently been trying to raise up to $1 billion in capital that would have valued the company at $7 billion. That process stalled as the firm seeks to address the issues related to its exposure to Mr. Gupta’s businesses, according to people familiar with the fundraising.
It isn’t Greensill’s first run-in with a fund suspension. 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 the Greensill assets. These included hundreds of millions of dollars of illiquid assets tied to Mr. Gupta’s businesses.
The suspension didn’t stop Greensill from expanding. After the GAM funds wound down, Credit Suisse’s funds grew rapidly, giving the startup a fresh pool of investors that fueled its ability to do supply-chain financing deals.
Greensill’s troubles could prove painful to SoftBank. The firm turbocharged other Vision Fund holdings by extending them short-term financing.
Not all of these deals have worked out. In December, Greensill forgave $435 million in financing to construction startup Katerra, around the same time the Vision Fund put in an additional $200 million into it to keep it afloat. Greensill received a roughly 5% stake in Katerra in return. Last month, a Greensill spokesperson said investors hadn’t incurred losses related to Katerra.
Vision Fund investees Fair Financial Corp., an auto-financing company, and View Inc., a glass manufacturer, have also received financing from Greensill.
SoftBank’s multilayered roles in Greensill have drawn controversy. In addition to investing in Greensill itself, and receiving Greensill funds through its portfolio companies, SoftBank put $700 million into the Credit Suisse-managed Greensill funds.
Last year, Credit Suisse executives grew concerned about potential conflicts of interest related to SoftBank’s roles. SoftBank ultimately redeemed its stake in the Credit Suisse funds, and Credit Suisse told investors it was “committed to taking steps to further protect” them.
For Credit Suisse, the fund suspensions are the latest setback for its asset management division. The unit, which manages around $480 billion, took a $450 million impairment charge on a stake in investment manager York Capital Management after York downsized its operations, helping push Credit Suisse to a fourth-quarter loss.
Switzerland’s financial regulator Finma said Monday it was in contact with Credit Suisse about the fund suspensions but declined to comment further.