Greensill Capital filed for insolvency on Monday after losing insurance coverage for its debt repackaging business and said in its court filing that its largest client, GFG Alliance, had started to default on its debts.
Greensill began to unravel last Monday when its main insurer stopped providing credit insurance on $4.1 billion of debt in portfolios it had created for clients including Swiss bank Credit Suisse.
The court document supporting Greensill’s insolvency application said without that insurance, Greensill was no longer able to sell notes backed by debts to investors, nor fund clients such as GFG in return.
“GFG has fallen into severe financial difficulty,” the court filing said. “GFG has started to default on its obligations.”
A spokesman for GFG, which is controlled by Indian-British steel magnate Sanjeev Gupta, declined to comment on the default claim in the loop filing, or the size of Greensill’s exposure to GFG.
Last week, GFG said it had adequate current funds and that its businesses were operationally strong.
Greensill had about $5 billion of exposure to GFG, the Financial Times reported on Monday, citing Greensill’s lawyers.
Trade unions in Britain said they would meet officials from Gupta’s Liberty Steel on Tuesday to seek assurances about jobs after Greensill’s insolvency filing.
Accountancy firm Grant Thornton said in a statement it had been appointed administrator of Greensill’s two core UK companies, which oversaw its business of buying short-term debt and converting it into bonds for sale to investors.
Grant Thornton has agreed in principle to sell Greensill’s intellectual property and technology platform for processing client payments to U.S. private equity group Apollo Global Management Inc. for $60 million, the court filing said.
Apollo is expected to announce a deal in the next day and the group plans to continue operating Greensill’s supply chain finance business for investment grade clients, one source familiar with its plans said.
Apollo, Greensill and Credit Suisse declined to comment.
The collapse of Greensill, whose founder, Lex Greensill, received a state honor from Britain in 2018 for his services to the economy, could lead to a series of regulatory investigations and cause financing problems for its higher-risk borrowers.
Credit Suisse told investors most of the money in its supply chain finance funds was insured but the bank has declined to confirm the current insurance status of the funds.
Greensill said it had provided more than $143 billion of financing in 2019 to 10 million customers and suppliers.
In Germany, where Greensill runs a bank, financial regulator BaFin has filed a criminal complaint with prosecutors in Bremen, where the lender is based. The precise details of the complaint are not known.
BaFin also suspended Greensill Bank’s operations saying there was an imminent risk it could become bankrupt. The German bank kept Greensill Capital’s short-term loans on its balance sheet before they were securitised and sold to Credit Suisse.
Several German municipalities have flagged that they have put millions of euros into Greensill Bank, attracted by its lack of negative interest rates, and some are calling on the federal government to cover any losses.
BaFin said an audit found that Greensill Bank could not provide evidence of receivables on its balance sheet purchased from GFG Alliance. GFG has not responded to requests for comment on BaFin’s findings.
The Bank of England’s Prudential Regulation Authority has taken action against GFG’s own trade finance arm, Wyelands Bank, ordering it to repay all its depositors, without specifying why.
GFG has declined to comment on the reasons.
Allen & Overy represent Greensill and Kirkland & Ellis and Mayer Brown represent Apollo.
(Additional reporting by Rachel Armstong and Abhinav Ramnarayan in London; editing by Alexander Smith and David Clarke)