Embattled financial startup Greensill Capital plans to file for insolvency in the UK this week, as it simultaneously moved toward a deal to sell its operating business to Apollo Global Management, according to people familiar with the matter.
The deal with Apollo, which could be struck by the end of the week, would be part of a Greensill insolvency, similar to the US bankruptcy process, the people said.
The Wall Street Journal previously reported the two sides were in talks for a deal that would pay Greensill around $100m.
Founded in 2011 by former Morgan Stanley and Citigroup banker Lex Greensill, the startup received $1.5bn of investment from SoftBank Group giant Vision Fund. Once valued as much as $4bn, the unravelling of the firm is turning into a cautionary tale about the high valuations placed on startups trying to disrupt traditional banking businesses.
Apollo would take over Greensill’s core operations and customers. Greensill offers what is known as supply-chain finance, a type of short-term cash advance that gives companies extra time to pay suppliers. These include blue-chip companies and government agencies, such as the UK’s National Health Service, AstraZeneca and Ford Motor.
Greensill competes directly with the likes of JPMorgan Chase and Citigroup. Apollo has reached out to major Greensill clients in recent days to reassure them about the possible transition, according to the people.
Supply-chain finance has been around for decades but gained traction after the financial crisis as a way for companies to squeeze more out of their balance sheets. Companies are effectively borrowing to pay their bills, though the transactions aren’t classified as traditional debt according to accounting rules.
Through the acquisition Apollo would inherit clients that generate around $7bn in performing assets for Greensill, according to the people familiar with the matter. Athene Holding, an insurance company affiliated with Apollo, and other insurance clients would fund the business, the Journal earlier reported.
Greensill was plunged into crisis on 1 March when Credit Suisse froze $10bn in investment funds that Greensill relies upon to do supply-chain finance deals. Its banking subsidiary has come under day-to-day supervision in Germany. The company confirmed Tuesday that it was in talks for a sale.
The Credit Suisse move came the same day Greensill’s credit insurance providers allowed policies covering more than $4bn assets to lapse on 1 March, according to a judgment in the Supreme Court of New South Wales, Australia, where Greensill’s ultimate parent company is based. Greensill sued the insurers unsuccessfully to maintain coverage.
In a typical supply-chain finance deal, Greensill pays a company’s suppliers sooner than they would normally expect, but at a discount. The company then pays Greensill the full amount down the road. The supplier gets paid early, the company has more flexibility over its cash, and Greensill is left with a small profit.
Greensill packages the cash advances it makes to companies into bondlike securities. The Credit Suisse funds invested exclusively in Greensill-generated assets, selling them on to investors looking to eke out higher returns than they could get from traditional money-market funds.
To give investors comfort about the assets, Greensill obtained credit insurance from several large insurance companies, which would payout in the case one of the underlying customers defaulted on a payment.
This story was published by the Wall Street Journal