David Tepper has bought bonds from 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, people briefed on the matter have said. .
Tepper acquired the bonds as well as the preferred stock through Appaloosa, which largely manages his family’s multi-billion dollar fortune, the people said. He is one of the most successful investors in struggling financial companies, including winning billions of dollars on a 2009 bet that US banks would not be nationalized.
On Friday, SVB filed for Chapter 11 bankruptcy in a bid to facilitate the auction of its brokerage, which generated more than $500 million in revenue in 2022, and a management arm of funds with $9.5 billion in assets.
SVB said it has $2.2 billion in cash, $3.3 billion in outstanding debt and $3.7 billion in preferred stock.
The bonds were trading near par before a run on Silicon Valley Bank prompted the Federal Deposit Insurance Corporation to take control of the lender. They fell to less than 40 cents on the dollar when the bank failed, but rebounded 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 between the bank’s collapse and the bankruptcy filing, the sources 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 Counsel to Sullivan and Cromwell.
A person familiar with the situation said there were at least two different groups of creditors trying to form committees to represent their interests to SVB advisers. A group would be made up of so-called “cross-holders” who hold both SVB bonds and preferred shares
However, several bankruptcy experts have said Silicon Valley Bank, which US regulators are trying to auction off, could also lay claim to the parent company’s cash and assets.
“Several provisions of the Bankruptcy Code provide federal regulators like the FDIC with significant advantages over other creditors,” the law firm Skadden wrote in a public note released Friday.
An investment firm that holds SVB debt said a “treasure hunt” was underway to locate pockets of value within the parent company that could support a recovery for bondholders.
SVB shares have been suspended since the banking subsidiary was taken over by the FDIC. The group’s market capitalization before the bank run exceeded $15 billion, although shareholders are expected to be wiped out.
A first day of hearing in the bankruptcy case is scheduled for Tuesday afternoon in federal bankruptcy court in Manhattan.