Greensill faces added supervision, works to sell core businesses

Company founder Lex Greensill tells employees he is focused on keeping the business operating.

Greensill Capital founder Lex Greensill told employees the business would have new owners next week. Picture: Paul Beutel

Pressure mounted on embattled SoftBank Group Corp.-backed Greensill Capital as it scrambled to sell core parts of its business and regulators intensified supervision of its banking unit.

Greensill founder Lex Greensill told employees on a conference call Tuesday that he was focused on keeping the specialty lender’s business operating and said there would be new owners by next week, according to people familiar with the matter.

Greensill spent Tuesday going through the company’s books with Apollo Global Management Inc., which has been in talks to take over some of its business, according to a person familiar with the discussions. The deal could see the bulk of the start-up, which two years ago was valued at $US4 billion, trade hands for around $US100 million.

In a statement, a Greensill spokesperson confirmed the company was in talks to sell a large part of its business. “While the structure of the new business is still being determined, we expect the transaction will ensure the majority of Greensill clients will continue to be funded in the same way as they currently are.” Meanwhile on Tuesday, a second fund manager, GAM Holding AG, barred investors from trading in and out of its Greensill-connected fund “as a result of recent market developments” and related media coverage. It plans to wind down the $US842 million fund and return the money to investors.

Greensill’s business model was up-ended Monday after Credit Suisse made a similar move, suspending $US10 billion in investment funds that contain securities created by the financial start-up. U.K.-based Greensill was founded in 2011 by Mr. Greensill, a former Citigroup Inc. and Morgan Stanley financier. It specialises in an area known as supply-chain finance, a form of short-term cash advance that lets companies stretch out the time they have to pay their bills.

Greensill packages the cash advances it makes to companies into bondlike securities. The GAM and 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.

The Credit Suisse and GAM funds were crucial to Greensill’s business of extending financing to blue-chip clients including AstraZeneca PLC and Ford Motor Co. The funds also contained notes tied to Greensill’s lesser-known customers, including small start-up businesses and companies that are considered higher-risk borrowers.

The Wall Street Journal reported Monday that Greensill had hired restructuring advisers and could file for insolvency, the U.K. equivalent of bankruptcy, within days, a move that was sparked by the closure of the funds.

In Germany, financial regulator BaFin in recent weeks appointed a special representative to oversee day-to-day operations of Greensill’s Bremen-based banking unit, according to people familiar with Greensill. A Greensill spokesperson said BaFin’s audit of Greensill Bank started last fall and “has specifically not revealed any malfeasance at the bank.” Greensill acquired the small German bank in 2014 for around $US20 million. In 2019, Greensill used the bulk of an $US800 million investment from Softbank’s Vision Fund to recapitalise the German lender, boosting its capital buffers. It used the bank to fund its supply chainfinance deals until it sold them off to the investment funds. “The bank is as much as anything a warehouse that provides us with the ability to manage the liquidity requirements of our business,” Mr. Greensill said in an interview at that time.

Given its relative size, Greensill is unlikely to cause widespread disruption in the financial world, though it could cause problems for its customers as they look for alternative forms of short-term financing. Greensill reported $US420 million in revenue in 2019. Greensill said it generated more than $US140 billion in financing last year. Some of that total counts short-term financing deals with companies that get renewed multiple times a year.

The banking subsidiary in Germany at the end of 2019 had €3.8 billion in assets, currently equivalent to about $4.5 billion, according to Scope Ratings. It had €3.3 billion in deposits, much of which fall under Germany’s generous deposit insurance programs.

In the case of Credit Suisse, a key factor driving the fund closures was the decision in recent days by a credit insurance provider not to backstop new Greensill assets, Mr. Greensill told employees on the conference call Tuesday.

On Monday, a judge in the Supreme Court of New South Wales Australia rejected a suit brought by Greensill in February to demand its credit insurers maintain coverage on $US4.6 billion of assets related to around 40 clients. The insurers included BCC Trade Credit Pty Ltd., which is a unit of Tokio Marine Holdings Inc., and Insurance Australia Group Ltd.

The judge’s ruling said that the insurers informed Greensill in September that they would drop coverage as of this month.

Credit insurance protects investors from losses and gives extra comfort in deals related to the types of less established or unrated companies on Greensill’s client list.

Last year, several Greensill clients ran into financial difficulties. They included NMC Health PLC, U.K.-based rent-to-own business BrightHouse Ltd. and Singapore commodities trader Agritrade Resources Ltd. All three filed for restructuring. A Greensill spokesman said in October that credit insurance was in place for each of these companies.

Credit Suisse’s relationship with Greensill also includes a loan the Swiss bank made last fall, according to people familiar with the matter. The loan, which one of the people said is worth $US140 million, remains outstanding and was meant as a bridge to help Greensill while it was trying to raise fresh equity, the people said. The existence of the loan and the move by the German regulator were first reported by the Financial Times. Credit Suisse froze its funds Monday because of difficulties ascertaining accurate valuations of some assets created by Greensill. The Journal reported Sunday that Credit Suisse had grown concerned about the funds’ exposure to a single client, U.K. steel magnate Sanjeev Gupta.

GAM on Monday said it had no exposure to businesses affiliated with Mr. Gupta. In July 2018, GAM froze a $US12 billion fund after an internal whistleblower raised concerns about how the fund valued the Greensill assets at the time. These included hundreds of millions of dollars of illiquid assets tied to Mr. Gupta’s businesses.

The German regulator, BaFin, began examining ties between Mr. Gupta’s businesses and Greensill’s German banking unit last year, according to a person familiar with the probe. The German regulator was concerned that Greensill Bank had too much exposure to Mr. Gupta’s businesses.

In the talks with Apollo, one plan is to sell the good parts of Greensill, including performing assets and the core operating business, according to people familiar with the talks. The rest of Greensill, including riskier loans to Mr. Gupta’s companies and supply-chain financing deals Greensill did with other SoftBank Vision Fund companies, would be dealt with separately.

Patricia Kowsmann contributed to this article.

The Wall Street Journal