Considerations for Portfolio Companies with Relationships with Silicon Valley Bank

March 11, 2023

On Friday, the Federal Deposit Insurance Corporation (“FDIC”) was appointed receiver for Silicon Valley Bank (“SVB”). 

To assess their exposure, SVB customers may wish to consider the following facts:

Portfolio companies with relationships with SVB should:

  • Confirm the type of relationship you have with SVB.  Companies should confirm the exact account types held at SVB, as it may impact exposure to SVB (e.g., demand deposit account, interest account, cash sweep).  In assessing these relationships, companies should consult their documentation. Arrangements that are often colloquially described as “custodial” or “investments” may actually create deposit relationships.
  • Make plans for moving insured deposits.  The FDIC has stated that insured deposits will be made available Monday at the latest.  Companies should ensure they have a bank account to which they can transfer such money. If it will take some time to open an account, consider whether a fund or sponsor can hold the money in trust.  Companies should also consider diversifying banking relationships going forward to mitigate risk.
  • Consider whether you need additional near-term funding.  Any amounts held in deposit accounts over $250,000 (per depositor and per ownership category, not per account) are uninsured deposits.  The FDIC announced that it would “pay uninsured depositors an advance dividend within the next week,” but it is not clear what amount that will be.  The remainder of uninsured funds will be represented by receivership certificates and the timing and amount of dividends received on such certificates is unclear.  Consider whether the company has additional near-term funding needs if money is tied up at SVB. 
  • Determine how to hold your receivership certificate. If the sponsor will hold it for the company, custody rule requirements should be considered.
  • Explore refinancing your loans with another lender.  Companies should consider whether they need to establish a financing relationship with another lender.  For collateralized loans with SVB, there is a process for requesting a lien release once the loan has been paid, which will need to be addressed.
  • Determine whether you have setoff rights.  Companies that have both obligations owed to SVB and deposit accounts with SVB may be able to assert that they can set off their obligation to pay SVB against SVB’s obligation to pay on the deposit.