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Supply chain finance (SCF) provider Greensill could be at risk of insolvency within days, after Credit Suisse suspended two investment funds relied on by the London-based fintech.

Credit Suisse issued a notice to investors on Monday saying it was immediately suspending its SCF high income and investment grade funds, which provide as much as US$10bn in funding to Greensill.

In its statement, the bank says some of those investment funds’ assets are “subject to considerable uncertainties with respect to their accurate valuation”, and the decision to freeze them was taken “to prevent any detriment to the subfunds and their investors”.

When contacted by GTR, a spokesperson for Greensill acknowledges the bank’s decision “to temporarily gate supply chain finance funds dealing in Greensill-sourced assets”.

“We remain in advanced talks with potential outside investors in our company and hope to be able to update further on that process imminently,” they add.

The decision leaves Greensill facing the prospect of insolvency, and according to the Wall Street Journal, has already appointed accounting firm Grant Thornton to guide the company through restructuring if required.

Apollo Global Management, a New York-based private equity investor, is also in talks to purchase Greensill’s operational business for around US$100mn, according to the newspaper. Greensill could file for insolvency within days, it adds.

Representatives for Grant Thornton, Apollo Global Management and Credit Suisse did not immediately respond when contacted by GTR.

Greensill’s SCF offering typically involves extending credit to a buyer while purchasing supplier invoices, allowing the buyer to benefit from extended payment terms while suppliers can receive funds more quickly.

Part of Greensill’s funding comes from investment products created by packaging those supplier invoices together, with funds then investing in those packages.

 

Concentration of risk

Greensill has faced increasing pressure in recent months, including from German regulator BaFin. It emerged last year that BaFin was probing the company’s ties to companies owned by or linked to steel magnate Sanjeev Gupta, and planned to carry out an audit of Greensill’s activity.

GFG Alliance, a group of Gupta-linked businesses, has reportedly taken on as much as US$1.5bn in funding from Greensill, and according to an FT report in February, BaFin has become concerned over Greensill’s exposure to a single client.

Though headquartered in London, Greensill has a presence in the German market having acquired local financial institution NordFinanz Bank in 2014.

Credit Suisse has also recently changed guidelines for its SCF investment funds to reduce exposure to individual borrowers, Bloomberg says.

The FT suggests insurance cover for Greensill activities has become another concern, with Credit Suisse becoming alarmed that several policies had lapsed in recent days.

Its investment funds reportedly took a hit last year after multiple defaults involving Greensill clients, and according to court documents seen by GTR, Greensill was a creditor to Singapore’s Agritrade, a commodities trader that collapsed last year amid allegations of trade finance fraud.

Insurance cover had already been identified as a risk to Greensill’s business by German ratings agency Scope in September last year, when it downgraded the company from A- to BBB+.

The agency said it believed “rising insurance cost… will have a negative impact on profitability”, and that loss of insurance cover would be a driver for further negative rating changes.

Scope added that the “volatile operating environment has exposed the group’s reliance on cyclical customer business and weaknesses in Greensill Capital’s governance regarding third-party funds”, though acknowledged there had been board-level action to address those issues.

Greensill-run Credit Suisse investment funds were also allegedly involved in a circular financing arrangement uncovered by the FT last year.

Japan-headquartered backer SoftBank – which also backs Greensill – had invested in those funds, but withdrew after it emerged many of the recipients were start-ups already backed by its own Vision Fund. The investments themselves had been sourced exclusively through Greensill, the FT says.

 

UK guarantees withdrawn

In the UK, it has also emerged that the state-owned British Business Bank (BBB) has withdrawn guarantees on Covid-19 crisis loans to Gupta-related firms.

The UK government had considered creating a new supplier payment programme as part of emergency packages designed to support companies grappling with the economic impact of the pandemic.

But GTR revealed in September that the government decided not to proceed with the scheme after industry participants insisted the existing Coronavirus Large Business Interruption Loan scheme (CLBILS) was already suited to provide supplier payments.

Greensill was one of a handful of firms providing invoice financing through CLBILS, but according to Sky News, sparked concerns at the BBB after lending substantial sums to companies that are part of Gupta’s GFG Alliance.

The withdrawal of its guarantee means Greensill would not be covered if GFG Alliance recipients of CLBILS loans were to default.

The BBB did not immediately respond when contacted by GTR.

As of press time Greensill has issued no further statement.