Court File and Parties
COURT FILE NO.: CV-23-00696271-00CL DATE: 20230720 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
IN THE MATTER OF SILICON VALLEY BANK AND IN THE MATTER OF THE WINDING-UP AND RESTRUCTURING ACT, R.S.C. 1985, C.W-11, AS AMENDED AND IN THE MATTER OF THE BANK ACT, S.C. 1991, C.46, AS AMENDED
RE: ATTORNEY GENERAL OF CANADA, Applicant AND: SILICON VALLEY BANK, Respondent
BEFORE: Peter J. Osborne J.
COUNSEL: Chris Bur, Conflict Counsel for PwC, Liquidator Marc Wasserman and Karin Sachar, Counsel for PwC, Liquidator Kenneth Kraft and John Salmas, Counsel for FDIC, US Receiver
HEARD: July 20, 2023
Endorsement
PricewaterhouseCoopers Inc. (PwC), in its capacity as Court-appointed Liquidator of the business in Canada of the Respondent, Silicon Valley Bank (SVB), seeks approval of the Clearco Transaction and related vesting relief, a sealing order in respect of the Confidential Appendices to the Third Report of the Liquidator, and finally, approval of activities, fees and disbursements for the Liquidator and its counsel through to June 30, 2023.
The Service List has been served with all of the motion materials. Defined terms in this Endorsement have the meaning given to them in the motion materials and/or the Third Report of the Liquidator dated July 14, 2023, unless otherwise stated.
The relief sought today is unopposed. It is strongly recommended by the Liquidator, and is supported by Clearco and FDIC.
This matter was previously case managed by Justice McEwen.
The Liquidator relies upon the Second Report dated April 24, 2023 Third Report dated July 14, 2023 including for greater certainty the fee affidavits and Confidential Appendices attached thereto.
I have not set out in this Endorsement the full background to, and context of, this motion which are fully set out in the Reports, as well as the previous Endorsements of the Court in this matter.
Of particular relevance to the relief sought today, the Court approved a sale and solicitation process (SSP) on May 1, 2023 to solicit proposals to purchase some or all of the Property of SVB Canada as a going concern or otherwise.
The SSP contemplates, as is not unusual, a two-stage process, with Phase 2 including only those prospective purchasers that are Qualified Bidders.
Prior to these proceedings, SVB as administrative agent and lender, had made available to CFT Clear Finance Technology Corp. (Clearco) two credit facilities in the aggregate amount of $80 million (the Clearco Credit Facilities).
The Liquidator then set about to explore opportunities to sell the Clearco Credit Facilities as part of the SSP. It received a joint Qualified LOI from iNovia Capital Inc. and Founders Circle Capital, LLC, Limited for the Clearco Credit Facilities.
Other Phase 1 Qualified Bidders ascribed in their offers a comparatively low value to the Clearco Credit Facilities, with the result of the Liquidator carved them out from Phase 2 in order to attempt to maximize value for these assets. Ensuing negotiations resulted in the Sale Agreement and the Clearco Transaction contemplated therein in respect of which approval is sought today.
To be clear, the iNovia bid was the only distinct offer received for the Clearco Credit Facilities and it represented consideration that materially exceeded the value attributed to these assets by the other Phase 1 Qualified Bidders.
The Liquidator then communicated to Phase 2 Bidders that the Clearco Credit Facilities were being removed from the Loan Portfolio for the purposes of Phase 2 of the SSP.
The proposed Clearco Transaction contemplates the sale and assignment of the Clearco Credit Facilities to the Purchasers (a consortium of iNovia, Founders Circle and SVB Innovation Credit Fund VIII, LP). The Clearco Credit Facilities consist of a senior secured revolving credit facility up to a maximum amount of $40 million, and a term loan facility in the maximum amount of $40 million extended pursuant to a mezzanine credit agreement. The term loan facility was subsequently 50% syndicated to SVB Capital. The Clearco Credit Facilities are fully drawn, with outstanding principal owing to SVB of $80 million, of which $60 million is recorded on the books and records of SVB Canada Branch as lender.
I am satisfied that the Clearco Transaction and request for related relief should be approved.
These proceedings were brought and previous orders (including the winding-up order made March 15, 2023) were granted under the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11, as amended (WURA). The provisions of both WURA and the winding-up order authorize the Liquidator to market the Assets of the SVB Canada Branch.
WURA expressly contemplates that a liquidator is empowered to market and sell the assets of an authorized foreign bank that is subject to a winding-up order under WURA. The winding-up order does not require the Liquidator to sell the Assets only as part of one comprehensive transaction for a sale of all of the assets together. It does authorize the Liquidator to sell Assets by public auction or private contract or to sell them in parcels with approval of this Court. Moreover, the Liquidator has the authority to modify the terms of Phase 2 of the SSP, depending on the results of Phase 1.
I am satisfied that the jurisdiction to authorize the market and sale of assets of an authorized foreign bank under WURA include jurisdiction to authorize the assignment of a contract. (See, for example, Maple Bank GmbH (Re), 2016 ONSC 7218 and the Endorsement of the Court in the same case dated September 27, 2016 (unreported)).
In any event, in the present case, Clearco, as the counterparty to the contracts to be assigned, consents to and indeed supports approval of the Clearco Transaction. I pause to observe that that party is, overwhelmingly, the most economically affected stakeholder in any event.
I also accept that while no test for approving a sale transaction under WURA is expressly set out in that statute, reference to the Soundair Principles provides the appropriate framework against which to consider such a transaction: Royal Bank v. Soundair Corp., [1991], O.J. No. 1137 (C.A.) (as approved by the Court in Maple Bank) as follows: a. whether sufficient effort has been made to obtain the best price and the applicant has not acted improvidently; b. the interests of all parties; c. the efficacy and integrity of the process by which offers were obtained; and d. whether there has been unfairness in the process.
I am satisfied that this test has been met here. The Liquidator made substantial efforts to canvass the market. The Clearco Transaction clearly provides, on the evidence before me, the highest and best value for the Clearco Credit Facilities attributed by any of the Phase 1 Bidders. I am satisfied that the market has been canvassed and that no higher transaction value is available.
I am also satisfied that it does not make commercial sense to decline to exclude the Clearco Credit Facilities from the overall Loan Portfolio for the purposes of Phase 2 of the SSP. This is the judgment of the Liquidator in the unique circumstances of this case. The Liquidator received financial advice with respect to the proposed transaction from Deloitte, to assist with its robust analysis. The consideration to be received falls in the range of estimated recoveries in the liquidation analysis prepared for the Liquidator. As noted above, Clearco consents to and supports the transaction.
The Clearco Transaction provides that SVB Canada will receive a substantial upfront cash payment from the Purchasers, with the ability to receive additional consideration in future based on recoveries from Clearco’s existing assets.
I specifically asked counsel for the Liquidator whether the remaining assets that would remain in the Loan Portfolio for the purposes of Phase 2 of the SSP, would be disproportionately affected in a negative value sense, such that even if the price for these assets could be said to be fair and represent the best possible recovery for stakeholders, the overall impact could be negative through a disproportionate lowering of imputed values for the balance of the Loan Portfolio.
This point was addressed, in part, at paragraph 29 of the third Report, and counsel satisfied me in oral submissions that the aggregate value is in every case more favourable if the transaction is approved.
I am also satisfied as to the efficacy of the process for the above reasons, and that there is no unfairness in the process. In this regard, I pause to observe that the Liquidator has followed and continues to follow the process already approved by this Court as part of the SSP. Again, Clearco, as the most economically affected stakeholder, consents.
For all of the above reasons, as well as the reasons set out in the Third Report, and the balance of the motion materials, I am satisfied that the Clearco Transaction is appropriate, is in the best interest of stakeholders and should be approved. It is hereby approved.
As specifically agreed by the parties (the Liquidator and FDIC), the structure and approval of the transaction and the consideration paid therefor shall not prejudice any argument that the Federal Deposit Insurance Corporation as Receiver of Silicon Valley Bank and Silicon Valley Bridge Bank (“US Receiver”) may wish to advance as to the nature and extent of its interest in the assets (other than the Purchased Assets, as defined in the APA, following Closing) or to the proceeds of sale, and all such rights of the US Receiver are reserved.”
The Liquidator also seeks a sealing order over the Confidential Appendices to the Third Report, being the unredacted asset purchase agreement and the SSP Information.
The information is clearly commercially sensitive, and I am satisfied that if made public now, and particularly before the transaction closes, it could and likely would have a material and negative impact on the sales process and a correspondingly negative impact upon recovery for stakeholders. In short, I am satisfied that test as articulated by the Supreme Court of Canada in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41 and refined in Sherman Estate v. Donovan, 2021 SCC 25 has been met.
One issue was the duration of the sealing order, and this was discussed at length with counsel. Ordinarily, such an order would cease to have effect following the closing of the transaction. Here, however, the Liquidator seeks an order that it remain in effect pending any further order of the Court, which may be sought on seven days’ notice.
I am persuaded that, in the very unusual circumstances of this case, that relief is appropriate. First, even after the Clearco Transaction closes (assuming it does), disclosure of the Confidential Appendices could and I am satisfied likely would, have a material and negative impact on Phase 2 of the SSP and the balance of the Loan Portfolio, and therefore would be substantially detrimental to stakeholders as well as procedurally, to the integrity of that process.
Second, even beyond the sale of the balance of the assets, the transaction being approved here contemplates consideration that consists of both a cash component and a deferred consideration component, the value of which depends on recovery under the relevant loans. I am satisfied the disclosure of the Confidential Appendices could very well affect the administration of those loans and recoveries under the relevant facilities. Accordingly, until such time as Clearco has completed the process of recovering to the extent available under all accounts receivable and is in a position to quantify recovery, disclosure of the Confidential Appendices could have a direct and negative effect on those recoveries.
I do emphasize two things. First, the sealing order may be challenged by any stakeholder at any time on seven days’ notice as provided for in the draft order. Second, in referring to “any stakeholder” I am referring to any affected person or entity who wishes to challenge the sealing order, whether or not they are an economically affected stakeholder or even a party to this proceeding. In Court, the Liquidator specifically consented to this. My objective is to ensure that any affected person or entity may challenge the order at any time, whether or not they are a party to this proceeding. In the interim, however, I am satisfied that it is appropriate.
The Liquidator also seeks approval of the Third Report and the activities of the Liquidator as set out therein, together with approval of the fees and disbursements for the Liquidator and its Counsel up to June 30, 2023. I have reviewed the Third Report and specifically the two fee affidavits filed.
In the circumstances, I am satisfied that the activities, fees and disbursements are appropriate and are hereby approved. This matter is and has been complex.
Orders to go in the form signed by me today, which are effective immediately and without the necessity of issuing and entering.
Osborne J. Date: July 20, 2023