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Silicon Valley Bank FDIC Takeover

Distressed Debt and Looming Maturities: Liability Management and Restructuring Strategies in the Time of COVID-19 Background Decorative Image

As you may be aware, Silicon Valley Bank (“SVB”), a key lender serving customers and borrowers primarily in the technology industry, was taken over by U.S. regulators on Friday. In a press release, the California Department of Financial Protection and Innovation said that it had taken possession of the bank and named the Federal Deposit Insurance Corporation (FDIC) as receiver over SVB’s assets. A press release issued by the FDIC may be accessed here.

Vinson & Elkins’ Restructuring & Reorganization, Finance, Financial Regulatory, and other key teams are monitoring this situation closely, and stand ready to assist clients with issues that may arise from this development.

With decades of experience in many market environments, V&E attorneys have worked on behalf of our clients in numerous matters involving the FDIC, including during the Savings and Loan Crisis. Relatedly, we have robust knowledge of the FDIC’s receivership procedures.

Included below are considerations that may be top of mind for persons with connections to SVB. Please do not hesitate to reach out to our key contacts listed below with any questions you may have.

Considerations for Customers of SVB

  • FDIC’s deposit insurance limit is $250,000 per depositor, per insured bank, for each account ownership category, including principal and accrued interest through the date of SVB’s closing.
  • Customers will have access to insured deposits beginning on Monday, March 13, 2023 during SVB’s regular business hours.
  • FDIC intends to distribute uninsured depositors an advance dividend on account of uninsured deposits by March 17, 2022, though the amount of any such dividend is uncertain at this time.
  • Uninsured depositors will be tendered a receivership certificate from the FDIC for the balance of their uninsured funds following such distribution. Future dividend distributions may be made to uninsured depositors on account of receivership certificates as the FDIC disposes of SVB’s assets.

Considerations for Borrowers of SVB

  • In its capacity as receiver over all of SVB’s assets, the FDIC likely will seek to sell or assign SVB’s portfolio of loans to one or multiple third-party banks or other qualified institutions.
  • The FDIC may undertake the associated loan servicing responsibilities previously held by SVB or assign such responsibilities to a third-party servicer.
  • The FDIC likely will send written notice with payment instructions and points-of-contact to borrowers whose loans it has retained.
  • FDIC guidance instructs borrowers to continue to make payments on the terms of existing loans, and that obligations under existing loans remain in effect.
  • In its capacity as receiver, subject to certain exceptions, the FDIC is generally precluded from continuing the lending operations of a failed bank. The FDIC has not provided guidance on whether it will honor lines of credit or letters of credit.
  • It has been reported that the FDIC commenced an auction process for SVB on March 11, with final bids due on March 12.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.