David Tepper has snapped up bonds of SVB Financial Group, the parent company of Silicon Valley Bank, in a bet that the value of the debt will rise as parts of the group are auctioned off, said people briefed on the matter.
Tepper acquired the bonds along with preferred stock via Appaloosa, which for the most part manages his family’s multibillion-dollar fortune, the people said. He is among the most successful investors in troubled financial companies, notably making billions of dollars on a 2009 wager that US banks would not be nationalised.
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 $500mn of revenue in 2022, and a fund management arm with $9.5bn of assets.
SVB said it had $2.2bn of cash, $3.3bn of outstanding debt and $3.7bn of preferred stocks.
The bonds had been trading at near par value before a run on Silicon Valley Bank prompted the Federal Deposit Insurance Corporation to seize control of the lender. They fell to under 40 cents on the dollar when the bank failed but have recovered to more than 60 cents on hopes of successful asset sales by SVB.
The preferred stock is trading around 10 cents on the dollar.
Tepper acquired the securities in the period between the bank collapsing and the bankruptcy filing, the people said.
Appaloosa is working with the law firm White and Case, which is seeking to organise a group of creditors to negotiate with SVB Group’s legal counsel at Sullivan and Cromwell.
One person familiar with the situation, said there were at least two different creditor groups trying to form committees to press their interests with SVB’s advisers. One group is said to be comprised of so-called “cross holders” who own both SVB bonds and preferred stock
However, several bankruptcy experts said Silicon Valley Bank, which US regulators are trying to auction off, could also make a claim on the parent company’s cash and assets.
“Several provisions in the Bankruptcy Code grant federal regulatory agencies like the FDIC significant advantages relative to other creditors,” the law firm Skadden wrote in a public memo published on Friday.
One investment firm that holds SVB debt said a “scavenger hunt” was under way to locate pockets of value within the parent company that could underpin a recovery for bondholders.
Shares in SVB have been suspended since the bank subsidiary was taken over by the FDIC. The group’s market capitalisation before the bank run exceeded $15bn, although equity holders are expected to be wiped out.
A first day hearing in the bankruptcy case is set for Tuesday afternoon in a Manhattan federal bankruptcy court.