Federal bank regulators must turn over any tax refund checks made out to SVB Financial, a judge said on May 17, handing the bankrupt holding company a victory in its strategy to pay bondholders.
Over the next two years, SVB Financial is expecting about $300 million in tax refunds, company attorney James Bromley said during a court hearing in Manhattan. A few checks have already been mailed out, but wound up in the hands of the federal receiver or with First Citizens, which took over Silicon Valley Bank's deposits.
US Bankruptcy Judge Martin Glenn denied a request by the Federal Deposit Insurance Corp. to hold the checks in an escrow account while SVB Financial and bank regulators decide how to split up the tax refunds.
Under a tax-sharing agreement, the money will eventually be divided between the holding company and an FDIC receiver, who is overseeing the remnants of Silicon Valley Bank.
"There is a process," Glenn told FDIC lawyer Derek Baker. "You want to bypass all that and keep the money for yourself."
When SVB Financial filed for bankruptcy in March, it had huge net operating losses and was owed substantial tax refunds. The refund checks and the right to use the losses to reduce future income taxes are among the most valuable assets available to pay creditors, Bromley said.
SVB Financial has been sparring with the agency since filing for bankruptcy in March. A dispute over $2 billion in deposits has already bogged down the Chapter 11 case and threatens to pit the bankruptcy process against the receivership process the FDIC uses to repay creditors.
The agency argues that once it took over Silicon Valley Bank, it became the owner of the $2 billion, in the same way that all banks take ownership of any cash deposits. As a result, SVB Financial is merely a creditor which owns the right to try to collect the $2 billion, the FDIC says.
Glenn has repeatedly told the FDIC that it cannot ignore the bankruptcy case and must file a claim like any other creditor of SVB Financial. He has ordered the FDIC to file a statement explaining the agency's authority to withhold the $2 billion.
The bankruptcy is SVB Financial Group, 23-10367, US Bankruptcy Court for the Southern District of New York.
