Billionaire David Tepper is banking on Silicon Valley Bank debt

David Tepper has bought bonds from SVB Financial Group, the parent company of Silicon Valley Bank, in a bet that the value of the debt will rise if parts of the group are auctioned off, people with knowledge of the matter said.

Tepper acquired the bonds along with preferred stock through Appaloosa, which manages most of his family’s multibillion-dollar fortune, the people said. He is one of the most successful investors in troubled financial companies, notably making billions of dollars on a 2009 bet that US banks would not be nationalized.

SVB filed for Chapter 11 bankruptcy protection on Friday to facilitate the auction of its broker-dealer, which had more than $500 million in sales in 2022, and a fund manager with $9.5 billion in assets.

SVB said it has $2.2 billion in cash, $3.3 billion in outstanding debt and $3.7 billion in preferred stock.

The bonds were trading near par before a run on Silicon Valley Bank prompted the Federal Deposit Insurance Corporation to seize control of the lender. They fell below 40 cents on the dollar when the bank collapsed but have rallied above 60 cents on hopes of successful asset sales by the SVB.

The preferred stock trades around 10 cents to the dollar.

According to the public, Tepper acquired the securities in the period between the collapse of the bank and the filing for bankruptcy.

Appaloosa is working with the law firm White and Case, which is attempting to organize a group of creditors to negotiate with SVB Group counsel at Sullivan and Cromwell.

A person familiar with the situation said there were at least two different groups of creditors trying to form committees to assert their interests against the SVB advisers. One group is said to consist of so-called “cross-holders” who own both SVB bonds and preference shares

But several bankruptcy experts said the Silicon Valley bank, which US regulators are trying to auction off, could also claim the parent company’s cash and assets.

“Several provisions of the bankruptcy law give federal regulators like the FDIC significant advantages over other creditors,” law firm Skadden wrote in a public memo released Friday.

An investment firm that holds SVB bonds said a “scavenger hunt” was underway to uncover value within the parent company that could support a recovery for bondholders.

Since the takeover of the bank subsidiary by the FDIC, the shares of the SVB have been suspended. The group’s pre-bank run market cap surpassed $15 billion, although shareholders are expected to be wiped out.

A day one hearing is scheduled for Tuesday afternoon in a Manhattan federal bankruptcy court.