Court File and Parties
COURT FILE NO.: CV-23-00696271-00CL DATE: 2023-08-11 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST
RE: Attorney General of Canada, Applicant AND: Silicon Valley Bank, Respondent
BEFORE: Peter J. Osborne J.
COUNSEL: Shawn Irving, Marc Wasserman, Karin Sachar and Michael De Lellis, Counsel for PWC (in its capacity as Liquidator of SVB Canada) Gabriel Faure, Fraser Bourne and Saneea Tanvir, Counsel for National Bank of Canada Kenneth Kraft, Counsel for Federal Deposit Insurance Corporation (as Receiver of SVB & Silicon Valley Bridge Bank)
HEARD: August 11, 2023
Endorsement
The Liquidator seeks approval of the National Bank Transaction, which is an asset purchase agreement with National Bank, pursuant to which it will purchase certain assets and assume certain liabilities.
Defined terms in this Endorsement have the meaning given to them in the motion materials of the Liquidator, and/or the Fourth Report of the Liquidator dated August 3, 2023, or my previous Endorsements in this matter, unless otherwise stated.
The Service List has been served. The relief sought is unopposed and is strongly recommended by the Liquidator and equally strongly supported by the U.S. FDIC, which is by far the largest economic stakeholder in the proceeding.
This Court granted a sale and solicitation process order on May 1, 2023, pursuant to which the Liquidator conducted the process to solicit proposals to purchase some or all of the Property. During the process, it has maintained the stability of SVB Canada and its operations to the greatest extent possible in these challenging circumstances.
Phase 1 of the SSP commenced the day after the process was approved. 113 persons who may have a potential interest (i.e., Known Potential Bidders) were identified and contacted. 50 parties signed NDAs and were deemed Qualified Bidders for Phase 1 with the result that they had access to the Data Room.
13 Qualified LOIs were submitted by the Phase 1 Bid Deadline. All were reviewed, and the Liquidator elected not to pursue six offers due to economic or structural terms. The remaining seven were invited to participate in Phase 2 of the SSP. Ultimately, the Liquidator received Qualified Bids from five Phase 2 Qualified Bidders, including the bid submitted by National Bank. Negotiations ensued. Several of the bids had conditions that the Liquidator deemed would be incapable of being met.
On July 28, 2023, National Bank submitted a revised Qualified Bid which increases the consideration payable for the Purchased Assets. The terms of a definitive transaction were negotiated, and it is approval of that transaction that is sought today.
Pursuant to the National Bank APA, which is an asset purchase agreement dated July 31, 2023, National Bank will acquire and assume all of the rights of SVB Canada to the Purchased Assets and its obligations under the Assumed Liabilities.
Purchased Assets include the Loans (credit facilities made available to Borrowers by Silicon Valley Bank through SVB Canada as described in the materials), Loan Documents, Books and Records, and all rights to any Claim available to or pursued by Seller related to the Purchased Assets, the Assumed Liabilities, or the Business.
Assumed Liabilities consist of obligations arising on and after the Cut-off Date related to the Purchased Assets, obligations to be performed by Seller under the Assumed Contracts, and all liabilities expressly assumed by Buyer relating to employees or termination of employment.
The particulars of the National Bank APA and the key terms are fully set out in the Fourth Report.
Should the transaction be approved? In my view, it should be.
The Liquidator was appointed pursuant to a Winding-up Order made under the Winding-up and Restructuring Act (WURA). Both that Order and WURA authorize the Liquidator to market the Assets and carry out the SSP.
WURA does not set out a test, or the factors to be considered, on a motion for approval of a sale transaction. I am satisfied that the Soundair Principles (Royal Bank v. Soundair Corp., 1991 2727 ONCA) that apply to an asset sale by a receiver, are appropriate and equally apply to a sale transaction in a WURA liquidation of an authorized foreign bank. In so concluding, I am following the conclusion of Chief Justice Morawetz (then Regional Senior Justice) in Maple Bank GmbH (Re), 2016 ONSC 7218, as I did earlier in this same proceeding when I approved the Clearco Transaction: Attorney General of Canada v. Silicon Valley Bank, 2023 ONSC 4262.
I am satisfied that the Soundair Principles have been met in this case.
First, the Liquidator has made substantial efforts to canvass the market for bidders pursuant to the terms of the SSP. Its reasonable business judgment at the conclusion of that process is that the National Bank Transaction is the best available option, considering all other Qualified Bids.
Numerous facts support that business judgment. All or substantially all of the remaining Assets, including 100% of the Loan Portfolio and Assumed Liabilities, will be acquired. National Bank is a Schedule 1 bank and therefore no further approval pursuant to the Bank Act, S.C. 1991, c.4 is required, and it has similar assets under management with the result that minimal transition services will be required.
The Transaction provides a meaningful recovery measured as a percentage of the outstanding Loan balance. National Bank intends to make offers of employment to certain SVB employees but the Transaction is not conditional upon any minimum number thereof accepting such offers. There are no financing conditions, and minimal conditions precedent to closing.
On the whole, the Transaction has a greater certainty of closing compared to alternatives. The counterparty (National Bank) has $418 billion in assets (as at April 30, 2023) and forms, together with its subsidiaries, one of the country’s leading integrated financial groups. With 30,000 employees, its securities are listed on the TSE.
The Competition Bureau has confirmed that the National Bank Transaction would be exempt and not notifiable pursuant to section 111(a) of the Competition Act, R.S.C. 1985, c.C-34.
Second, the Liquidator, again in its business judgment, has concluded that it is in the best interests of the stakeholders of SVB Canada within the parameters of the SSP, that the Transaction be approved. I agree. The SSP has been followed in good faith, and the result today is the conclusion of robust and real negotiations. The consideration to be received is within the range of estimated recoveries in the liquidation analysis of Assets prepared by the Liquidator. Closing will mitigate incremental and ongoing fees, expenses and costs.
As noted above, FDIC, as the major economic creditor, is fully supportive.
Third, there has been efficacy in the process. The SSP generated significant interest and a healthy number of Qualified Bidders, in both Phase 1 and in Phase 2.
Fourth, there has been no unfairness in the SSP or the execution thereof.
For all of these reasons, the National Bank Transaction is approved.
By way of ancillary relief, the Liquidator seeks a sealing order over the unredacted National Bank APA and the Confidential Comparative Analysis prepared by the Liquidator, attached respectively as Confidential appendices “A” and “B” to the Fourth Report.
The sealing relief is sought on the limited temporal basis to continue until further order of this Court for the Confidential Comparative Analysis, and until the National Bank Transaction has closed for the unredacted APA.
In the circumstances, and given the limited temporal effect of the proposed sealing order, I am satisfied that the three-part test set out by the Supreme Court of Canada in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, as refined in Sherman Estate v. Donovan, 2021 SCC 25, has been met.
The maximization of recovery in insolvency is an important public interest to which court openness poses, in the particular circumstances of this motion, a serious risk. The order sought, albeit temporarily limited, is necessary to prevent that serious risk to the identified interest because reasonable alternative measures will not prevent the risk.
The risk here is that brought about by public disclosure of the redacted pricing information and the details of the consideration to be paid, either or both of which would very likely impair any efforts to remarket the Loan Portfolio and other Purchased Assets if the National Bank Transaction does not close. The same is true with respect to the Confidential Comparative Analysis.
There is no reasonable alternative to this limited sealing order. Such has been found to be the case with respect to CCAA proceedings, and I am satisfied that the same analysis applies to a sale within a WURA proceeding.
The proposed sealing order is discrete, proportional and limited, both as to the scope and content of the information sought to be redacted, and to the temporal limits.
The sealing order is granted.
Order to go in the form signed by me which is effective immediately and without the necessity of issuing and entering.
Osborne J.