Last Updated: March 14, 2023
Considerations relating to Silicon Valley Bank (SVB)’s closure have continued to evolve as a result of the recent announcement by the Federal Deposit Insurance Corporation (FDIC) that it has transferred all deposits—both insured and uninsured—and substantially all assets of the former SVB (including loans and lines of credit) to a newly created, full-service, FDIC-operated ‘bridge bank,’ Silicon Valley Bridge Bank, N.A. (SV BB).
Depositors and borrowers of SVB automatically became customers of SV BB and will have access to their deposits and the ability to borrow under lines of credit in the same manner as before the SVB closure. All deposits at SV BB – both insured and uninsured – are fully protected as a result of the systemic risk exception approved on Sunday.
Below are updated considerations that Fenwick’s clients may have in light of these new developments.
If you are a company with a loan facility with SVB, can the company draw down any available commitments?
The SVB loan portfolio has been transferred to SV BB, and SVB has confirmed in an announcement today that “[a]ll loan positions, including as lender, issuing bank, administrative agent and any other function that was formerly performed by Silicon Valley Bank has now been assumed by Silicon Valley Bridge Bank, N.A.” and that “[a]ll commitments to advance under existing credit agreements will be honored in accordance with and pursuant to the terms thereof.”
If there are undrawn commitments available under your loan facility, your company is permitted to borrow under the SVB loan agreements to the same extent permitted prior to the SVB closure. Please contact your Fenwick team to discuss any questions you may have regarding your loan facility.
The company should continue to make payments to the same address or wire instructions as prior to the SVB closure (payments should continue to be made to Silicon Valley Bank). You will receive a letter advising you of any changes.
If you are a company that does not have a loan facility, can the company move funds to another bank?
Yes, the FDIC has confirmed that all deposits, regardless of dollar amount, have been transferred to SV BB and that the total balance in customer accounts will be available for transactions daily. However, given that the all deposits are fully protected, any decision to move funds out of SV BB should be done in an orderly fashion. If the company has any secured bank services, such as credit cards or letters of credit, those arrangements will need to be terminated before any cash collateral can be transferred.
If you are a company that has a loan facility with a lender other than other than SVB, can the company move funds to another bank?
The company will need to review the terms of the loan facility to confirm whether the company needs to provide notice to the lender and, if applicable, what steps may be necessary to comply with control agreement requirements applicable to the company’s accounts. Please contact your Fenwick team to discuss the details of your loan facility.
If you are a company with a loan facility with SVB, can the company move funds to another bank?
Many SVB loan agreements include provisions that restrict borrowers from opening accounts at other financial institutions and require borrowers to maintain all or a portion of their funds at SVB. Additionally, SVB loan agreements typically require that any accounts maintained at a bank or financial institution other than SVB be subject to a control agreement in favor of SVB. In some cases, funds held outside of SVB will not be included for purposes of certain financial covenants. Failure to comply with these terms will constitute an event of default, and will allow SV BB or any subsequent lender to demand repayment of any outstanding loans and terminate the loan facility.
If the company has:
- An undrawn
loan facility that the company does not plan to maintain, the company can terminate the loan facility prior to moving funds to another bank. Penalties or fees may apply; check your loan agreement for details.
- Outstanding loans from SVB and sufficient liquidity to prepay the loans, the company can elect to prepay the outstanding loans and terminate the facility prior to moving funds to another bank. Penalties or fees may apply; check your loan agreement for details.
- Outstanding loans from SVB under a loan agreement that requires that those funds be maintained at SVB, and does not have sufficient liquidity to prepay the loans, the company should reach out to its SVB relationship contact to discuss a waiver prior to moving funds to another bank.
- An undrawn loan facility that the company plans to maintain and/or outstanding loans that the company would prefer to leave outstanding, the company should reach out to its SVB relationship contact to request that SV BB provide any necessary waivers or amendments to avoid breaching any implicated covenants. The company will also need to coordinate with the third party bank to comply with any control agreement requirements applicable to the company’s accounts.
- Previously moved funds to another bank in violation any implicated covenants, we would suggest taking a similar approach. Please contact your Fenwick team to discuss the details of your loan facility or any necessary waivers or amendments.
Fenwick is closely monitoring this rapidly changing situation as it evolves and partnering with our clients to address the potential impact on their businesses. If you have questions or would like to discuss further, please contact the authors of this alert or the Fenwick attorney with whom you normally work.