Foley & Lardner LLP is closely monitoring the rapidly changing landscape surrounding the recent bank insolvencies.
On Tuesday, March 21, at 5:00 p.m. CT, Foley hosted a webinar where a panel of presenters discussed the latest updates and practical considerations regarding Bank Receivership.
Below are the key takeaways from our timely discussion:
Cash management policies should be front and center with Directors and officers. Boards should receive information necessary to make a reasoned decision that the company’s cash management policies are sufficient and associated risks are reasonably addressed. In the event of litigation, a court will be looking to determine whether the Board and officers reviewed information necessary to make a reasoned decision and directed a reasoned approach that balances the different risks arising from this issue.
If a public company is doing business with a bank that may be unstable, that fact may be material and should be fully disclosed as required by Reg. FD. Public companies not doing business with affected banks may wish to disclose that fact so as to be able to answer questions directed by analysts to all public companies.
If a borrower withdrew funds from an impacted bank in violation of the terms of all or a portion of its loan agreement causing a default, that borrower may be able to cure the default by negotiating a return of the funds. We are likely to see borrowers considering and negotiating protective provisions in their credit agreements to address financially troubled lenders such as “yank-a-bank” provisions.
There are products available to protect borrowers, including repo sweeps in which your bank will sweep your funds into an overnight repo, thereby protecting your funds in the event of an overnight bank closure or seizure. Additionally, your bank may offer a product in which your funds on deposit over a designated amount are automatically spread over multiple banks and accounts. Subsidiaries and other entities within a corporate group may consider opening their own deposit accounts so as to break up the overall deposit.
This crisis has created an opportune environment for cyber criminals to send phishing emails in an attempt to divert wire transfers to their accounts. Employee training, particularly for payables and other finance personnel, and secondary verification process for all account transfers are strongly recommended.
Private credit investors continue to be focused on finding new opportunities. The fallout from Silicon Valley Bank will create opportunities for direct lenders and we are likely to see more pre-IPO debt facilities. We are starting to see an uptick in public market investors that had recently been less active in M&A who are now becoming more active, largely for sub $1B enterprise value M&A deals.
As regulators continue to make statements about recent activities, it is possible that smaller regional banks may be subject to stress tests and potentially increased capital requirements. We may see the creation of private insurance products in this space to cover losses on deposits beyond the FDIC limit.
For those investors or bondholders of SVB Financial Group, only partial agreement was reached between the debtor and the FDIC Receiver in the bankruptcy case. Over $2 billion held in frozen accounts remains in dispute. For now at least, disclosures made in the bankruptcy case has provided information that SVB Financial Group has sufficient operating capital.
Please reach out to members of the Bank Receivership Task Force or to your Foley relationship partner if we can provide assistance.