SVB Financial bondholders are raising their bets in a bankruptcy court battle with the Federal Deposit Insurance Corp. that they can defeat the agency’s claim to nearly $2 billion that Silicon Valley Bank’s parent company had on deposit with the bank when it failed, WSJ Pro Bankruptcy reported. The FDIC has maintained that it has no obligation to return the cash following its takeover of the bank, but SVB Financial’s $3.4 billion in bonds have rallied as some investors gain confidence that they could see more of a recovery by prevailing over the agency’s claim. When Silicon Valley Bank went under, the FDIC stepped in to make depositors whole, but it made an exception for the deposits of the bank’s parent company, SVB Financial. The parent filed for chapter 11 in March, touching off a legal battle with the FDIC over how to allocate losses stemming from Silicon Valley Bank’s collapse. The FDIC in court filings last week said it isn’t obliged to return the cash that SVB Financial deposited with its banking unit. Distressed-debt investors that scooped up the company’s bonds before and after its bankruptcy are looking to recover the deposited cash from the FDIC, which took an estimated $20 billion loss when Silicon Valley Bank went under. The FDIC has said it could use the nearly $2 billion in its capacity as the failed bank’s receiver to “set off” any legal claims and causes of action it has against the parent company.
