In the latest development around the closure of Silicon Valley Bank and the appointment of the Federal Deposit Insurance Corporation (FDIC) as receiver, the FDIC announced today that it has transferred all bank deposits—both insured and uninsured—to a newly created, full-service FDIC-operated “bridge bank.” The FDIC has also transferred over substantially all assets (including all lines of credit of the bank, as clarified in updated FAQs released by the FDIC). The bridge bank, Silicon Valley Bank, N.A. (SVB N.A.), is a fully operational national bank. However, SVB N.A. is operated by the FDIC on an interim basis as it markets SVB to potential bidders.

The recent announcements by the FDIC and Federal Reserve, as discussed in our earlier alert, and the establishment of SVB N.A. mean that all deposits at SVB N.A. are now fully accessible and that all bank deposits—both insured and uninsured—will be fully protected. However, practical uncertainties and legal questions linger for companies that were customers of SVB, particularly those with loan agreements with SVB, until there is further guidance from the FDIC. Below are practical considerations, based on information currently known.

Can our company move its funds out of SVB N.A. if our company does not have a loan agreement with SVB?

Yes, the company can move its funds to other financial institutions. The FDIC has stated that the total balances in all SVB deposit accounts have been transferred to the “bridge bank”—SVB N.A.—and “will be available for transactions daily.” To the extent the company had cash collateral pledged with SVB for letters of credit or credit cards, those amounts cannot be moved while those arrangements remain in place.

If the company has financing arrangements in place with a lender other than SVB, the company should review its existing financing arrangements regarding movements of funds and satisfying control agreement requirements.

What are the ramifications if our company moves its funds out of SVB if we have a loan agreement with SVB?

SVB N.A. expects borrowers to continue to make payments under and otherwise comply with the terms of their loan agreements. SVB loan agreements typically contain covenants requiring the borrower to maintain all or some specified portion of its accounts with SVB and requiring account control agreements for most accounts of the borrower that are maintained at other financial institutions. SVB loan agreements may also contain liquidity covenants that are measured in part by the amount of funds held on deposit with SVB. Failure to comply with these covenants would constitute an event of default and permit SVB N.A. or a successor that buys the loan to demand that the entire amount of the loan be repaid and to terminate any commitments. In addition, an event of default under the company’s SVB loan agreement may create a cross default under other company agreements.

If the company has a loan agreement with SVB, there are a number of factors set forth below that we would advise the company to consider prior to withdrawing funds from SVB N.A.:

• If the company determines it is desirable to move its funds from SVB N.A., the SVB relationship bankers are reachable to discuss obtaining any necessary waivers or amendments required to move such funds without violating the company’s existing loan agreement. These discussions should cover both setting up new banking relationships to the extent necessary and obtaining permissions for bridge loans or other third-party financing if a line of credit is not currently available.
• If the company has an undrawn loan facility that it does not need to use, it can be terminated prior to moving funds.
• If the company has a drawn loan facility and sufficient funds to repay it, it may terminate the loan agreement and repay all outstanding obligations prior to moving funds.
• In many cases, it will be prudent to wait to determine whether another bank will acquire SVB N.A. and continue the business because it may be advantageous to keep in place the company’s existing loan facility. Under current market conditions, it may be challenging to obtain a replacement financing on similar terms and conditions.

Now that SVB N.A. has been established and is open for business, and deposits are fully available, companies should proceed cautiously before making irrevocable decisions about compliance with loan facility covenants. Please consult with your Wilson Sonsini relationship attorneys for guidance on these matters, as the circumstances are dynamic, fact specific, and raise nuanced issues.