Crypto related lender/bank Silvergate Capital (SI) has announced that they will be liquidating Silvergate Bank. The company claims all all deposits will be covered.
Silvergate has NOT announced the status of the 5.375% preferred shares they issued in July, 2021. This was a $200 million share issue—most likely up in smoke–but we will await further information.
At issuance this issue was rate Ba3 by Moody’s and BBB- by Kroll.
21 thoughts on “Did You See? Silvergate Capital to Liquidate”
Something about SI today. As in signature bank! I got nothing there, but plenty of others.
If you look back to the October and December lows, you’ll get an idea of how strong the market views an issue. SIGBP included
SI-A climbed over $8. Are people expecting to get something in the liquidation?
Wedbush had previously estimated $5 value for the common in liquidation which would imply $25 for the preferreds. But that $5 was likely a SWAG. SI said all deposits are covered and since there’s little debt (Fed Home bank loan already paid off), value will quickly start accruing to preferreds as they liquidate.
How many class action lawsuits are they having to defend?
In my experience, those class action lawsuits result in a pittance settlement even when the company acted egregiously and knowingly — see Amtrust settlement. Also, I don’t believe the liquidating agent is required to hold anything in escrow to pay potential claims from lawsuits.
I found this regarding payment priority in a bank liquidation
“(c) Priorities are to be based on the circumstances that exist on the date of liquidation. ”
So, if you’re not already in line on the date liquidation is announced (such as pending lawsuits), you’re now last in line.
I find it odd no “suitors” decided to take them if there was going to be any meat left on the bone and they had to go liquidation route. Money to be made here, maybe. But this is more along the lines of a bet, such as mine in taking the plus 120 odds Calgary Flames dont make the playoffs.
It’s not a bet if you have non-public info as I suspect the people chasing SI-A higher must have. If it was just short covering, you’d expect to see it in the common as well. I bought SI-A at 4.25 and hedged it by selling the $8 Mar 17 calls in the common. Assuming that expires worthless, I’ve got a “free roll” on my shares at 4.25.
I’m using terminology from the craps table for a reason! Hopefully my free roll doesn’t turn up snake eyes!
I wouldn’t touch SI no matter what. The amount of leverage looping that was going on in the crypto space in particular various decentralized exchanges, was mind boggling. Makes my former levered 100X currency trading days look boring.
You could stake your crypto and squeeze out a majority chunk of that equity market value only to stake it again; than again; than again; and again and again. And this was on one exchange with the same token or project.
Now imagine taking above mantra and extrapolating it out simultaneously to various exchanges or projects and farming or even lending from that starting point. You are dealing with dark markets, challenging liquidity etc. Absolute writing was on the wall that this end resultant, even with well-intended entities, would be a cascading dominoes effect in it’s purest form.
Risk based leverage was very low at SI as the vast majority of their assets were AAA rated. Ironically, SI wouldn’t be in trouble if they had invested in standard leveraged loans (which float) instead of fixed rate Treasuries/Agencies. They took on way too much rate risk in lieu of taking credit risk.
Their only exposure to crypto prices are their margin loans which are collateralized 400%. I think crypto goes to zero long run but even then, I don’t have any concerns about a 75% instantaneous drop in BTC which is what it would take to impair those margin loans.
Regardless, that’s moot at this point as those loans will get called during liquidation.
Only winners will be the people/organizations that buy the distressed asset claims for .01c-.05c on the dollars from the holders and recover .25-.50c on the dollar 5years down the road.
I was referring to a bunch of those already filed in the pipeline over the FTX issues.
Now it’s over 10
Up 41% and climbing
The folks on BOD of Silvergate may come to regret being there.
Oh, forgot about the loans from the federal bank loan window.
Like If you prefer said, what a disaster.
Glad I wasn’t tempted.
SI.PRA has 8 million shares outstanding with a total liquidation preference of $200 million. The most recent financial statement showed $14.966B in total assets, $13.754B in total liabilities, and $1.212B in shareholders equity. So, there may be some hope for SI.PRA holders.
From the Prospectus, p. S-15:
“In the event we liquidate, dissolve or wind-up our business and affairs, either voluntarily or involuntarily, holders of the Series A Preferred Stock are entitled to receive an amount per share equal to the stated amount of $1,000 per share(equivalent to $25 per depositary share), plus any dividends that have been declared but not paid prior to the date of payment of distributions to stockholders, without regard to any undeclared dividends.
Distributions will be made only to the extent of our assets that are legally available for distribution to stockholders (i.e., after satisfaction of all our liabilities to creditors, if any), subject to the rights of holders of any securities ranking senior to the Series A Preferred Stock or pro rata as to the Series A Preferred Stock and any other shares of our stock ranking equally as to the distribution of our assets on our liquidation, dissolution or winding up, and before any distribution of assets is made to holders of our common stock or any other class or series of our stock that ranks junior to the Series A Preferred Stock as to the distribution of assets on our liquidation, dissolution or winding up.
Holders of the Series A Preferred Stock are subordinate to all of our indebtedness and to other non-equity claims on us and our assets, including in the event that we entered into a receivership, insolvency, liquidation or similar proceeding. In addition, holders of the Preferred Stock may be fully subordinated to interests held by the U.S. government in the event that we enter into a receivership, insolvency, liquidation or similar proceeding.”
What a disaster
How does SI get cash back from all those loans they did for btc? Do they sell those loans? Call them due to a contract clause? What happens to bitcoin if the collateral is sold to get back cash? The fdic could not even come up with a solution like another bank buying them or something? Things must be very messed up there.
Geez. Sure don’t have to wait long for answers when discussing si.
Wonder how B Riley’s investment in them is going to pan out