According to a person familiar with the company, Greensill Capital applied for insolvency protection on Monday, days after regulators took over its banking unit and froze Credit Suisse Group AG investment funds that were critical to the company’s business.
The settlement went to the holders of the Credit Suisse funds, German municipalities that paid money into Greensill’s bank, and a high profile of venture capital investors.
Greensill specializes in supply chain financing, a kind of short-term advance to companies to extend the time they have to pay to pay their bills. The business was once worth $ 4 billion based on investments by SoftBank Group Corp’s
Vision fund. The collapse is a striking blow to the giant Japanese investor.
The company, founded by Lex Greensill, who was born in Australia, described itself as a technological start-up that competed with traditional banks such as Citigroup. Inc.
and JPMorgan Chase & Co. Greensill’s goal was to offer supply chain financing to companies that have fallen under the radar of traditional banks that prefer larger, more established customers.
In a typical supply chain financing agreement, Greensill would pay the suppliers of a company earlier than they would normally expect, but at a discount. The company would then pay the full amount to Greensill. The supplier will be paid early, the company will be more flexible than cash, and Greensill will have a small profit.
Instead of keeping the cash advances – which are usually renewed every 60 or 120 days – on a balance sheet, like a traditional bank, Greensill divided most of it into bonds or debentures.
Investment funds are managed by Credit Suisse and GAM Holding AG
created these notes and gave professional investor clients a low-risk way to achieve higher returns than could be achieved in bank accounts or money market funds. The funds essentially serve as financing outside Greensill for balance.
Greensill’s operations were seized last week when Credit Suisse prevented investors from withdrawing or withdrawing money from $ 10 billion in investment funds. GAM follows the next day with its $ 800 million fund. Both said they would terminate the funds.
The Credit Suisse move was fueled after Greensill lost coverage of a set of credit insurers that provided protection if the customers of the startup failed.
The insurance was crucial because it made Greensill’s assets appear safer for Credit Suisse’s institutional investors, some of whom are limited to cash in riskier investments.
Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]
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