David Tepper has raised the bonds of SVB Financial Group, the parent company of Silicon Valley Bank, in a bet that the value of the debt will rise as part of the group that is auctioned off, said a person briefed on the matter.
Tepper acquired the bonds along with preferred stock through Appaloosa, which largely manages his family’s multibillion-dollar fortune, the people said. He is one of the most successful investors in troubled financial companies, most notably making billions of dollars in 2009 betting that US banks would not be nationalized.
SVB on Friday filed for Chapter 11 bankruptcy protection in a move intended to make it easier to auction off its broker dealer, which generated more than $500 million by 2022, and its fund management arm with $9.5 billion in assets.
SVB said it had $2.2bn in cash, $3.3bn in debt and $3.7bn in preferred stock.
The bonds had been trading at close to par value before a run on Silicon Valley Bank prompted the Federal Deposit Insurance Corporation to seize control of the lender. They fell below 40 cents on the dollar when the bank failed but have recovered more than 60 cents in anticipation of the successful sale of assets by SVB.
The preferred stock is trading around 10 cents on the dollar.
Tepper acquired the securities in the time between the bank’s collapse and the bankruptcy filing, the people said.
Appaloosa is working with the law firm White and Case, which is seeking to organize a group of creditors to negotiate with SVB Group’s legal counsel at Sullivan and Cromwell.
One person familiar with the situation, said that there are at least two groups of different creditors trying to form a committee to press interests with SVB’s advisor. One group is said to include so-called “cross-holders” who own SVB bonds and preferred shares.
However, some bankruptcy experts say Silicon Valley Bank, which US regulators are trying to auction off, may also make a claim on the cash and assets of the parent company.
“Several provisions in the Bankruptcy Code give federal regulatory agencies like the FDIC significant advantages relative to other creditors,” Skadden law firm wrote in a public memo published on Friday.
An investment firm that owes SVB said a “scavenger hunt” was underway to find pockets of value in the parent company that could support bondholders’ recovery.
Shares in SVB have been suspended since the bank’s subsidiary was taken over by the FDIC. The group’s market capitalization before opening the bank exceeded $15bn, although equity holders are expected to be wiped out.
The first day of hearings in the bankruptcy case is set for Tuesday afternoon in Manhattan federal bankruptcy court.