Silicon Valley Bank Financial Must Wait to Recover $2 Billion from FDIC

Silicon Valley Bank's former owner, the FDIC, is poised to compete for more than $2 billion in funding.

The former owner of Silicon Valley Bank, which was taken over by regulators earlier this month, will have to wait several months to know whether it can get back the roughly $2 billion in cash, it needs to repay bondholders and other creditors.

SVB Financial Group won temporary court approval on Tuesday to spend only a fraction of the cash the company claims federal regulators must return. What to do with the remaining funds will need to be decided in the coming months, and lawyers for bondholders, who owe more than $3.3 billion in debt, fear the FDIC will try to keep the cash.

A major issue for lawyers representing related parties, including the FDIC, Silicon Valley Bridge Bank NA and SVB Financial, is that their businesses are closely related.

“There are a lot of interconnections between the banks and the debtors,” said Sandeep Qusba, an attorney representing bridge banks formed due to the FDIC seizure. For example, SVB Financial sponsors the bank’s employee benefits. Both also share some of the same vendors.

But the bridge bank is under the purview of the federal government. The controversy surrounding the $2 billion draws parallels between the FDIC’s mission to return money to depositors and the bankruptcy’s priority of repaying creditors, such as bondholders, who have made large claims against SVB.

The FDIC could argue that it is a creditor in a bankruptcy case and has competing bondholders’ claims. Lauria argued that any fight over the $2 billion should be fought in bankruptcy court.

“The FDIC seems to believe they can settle their claims outside of court,” he said.

SVB’s attorney, James Bromley, said that SVB had settled several minor disputes over sharing information and allowed its former employees who now work for the FDIC-controlled bridge bank to work with the bankrupt holding company.

But the main question is what will happen to the $2 billion, he said.

Bankruptcy case for SVB Financial Group, 23-10367, US Bankruptcy Court for the Southern District of New York.

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