Greensill Capital falls into insolvency and financial pain spreads

LONDON – Greensill Capital filed for insolvency protection on Monday, according to a person familiar with the company, days after regulators took over its banking unit and Credit Suisse Group AG frozen mutual funds that were critical to the startup’s operations.

The reversal has affected holders of Credit Suisse funds, German municipalities that deposited money with Greensill’s bank and a high-profile duo of venture capital investors.

Greensill specialized in supply chain financing, a type of short-term cash advance for companies to extend the time they have to pay their bills. The firm was worth $ 4 billion based on investments from SoftBank Group Body

Vision background. The collapse marks a high-profile blow for the giant Japanese investor.

Founded by Australian-born Lex Greensill, the company promoted itself as a tech startup competing with traditional banks like Citigroup. Inc.

and JPMorgan Chase & Co. Greensill’s goal was to offer supply chain financing to companies that had fallen under the radar of traditional banks who preferred a larger, more established clientele.

In a typical supply chain finance deal, Greensill would pay a company’s suppliers earlier than they would normally expect, but at a discount. The company would then pay Greensill the full amount in the future. The supplier would be paid earlier, the company would have more flexibility on its cash, and Greensill would keep a small profit.

Rather than keeping cash advances, which typically roll over every 60 to 120 days, on its balance sheet like a traditional bank, Greensill converted most of them into securities or bond-like notes.

Investment funds managed by Credit Suisse and GAM Holding AG

collected those bills, providing professional investor clients with what appeared to be a low-risk way to earn higher returns than could be obtained on bank accounts or money market funds. In essence, the funds served as off-balance sheet financing for Greensill.

Greensill’s operations were seized last week when Credit Suisse blocked investors from entering or withdrawing money from the $ 10 billion in supply chain mutual funds. GAM did the same the next day with its $ 800 million fund. Both have said they would cut funding.

The Credit Suisse move was triggered after Greensill lost coverage from a set of credit insurers that provided protection in the event that the startup’s clients defaulted.

The insurance was crucial because it made Greensill’s assets appear safer to Credit Suisse’s institutional investors, some of whom are unable to invest cash in riskier investments.

Write to Julie Steinberg at [email protected] and Duncan Mavin at [email protected]

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