Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Friday, March 17. In today's briefing, we talk about Silicon Valley Bridge Bank easing a loan agreement for some borrowers that requires them to keep all of their capital with the bank. Eleven of the biggest banks in the U.S. swooped in to rescue First Republic Bank, committing a total of $30 billion to stop a spreading panic following a pair of recent bank failures. 

National CineMedia has extended a grace period after missing interest payments last month and is negotiating to hand control to senior lenders as part of a planned bankruptcy filing, sources told The Wall Street Journal.

And China Evergrande Group, the giant property company that defaulted on its U.S. dollar bonds more than a year ago, is close to striking a debt restructuring deal with foreign bond investors, according to people familiar with the matter.

Silicon Valley Bridge Bank to ease deposit rules. Startups and investors say the newly created entity that took over from Silicon Valley Bank is offering some flexibility when it comes to deposit requirements for borrowers.

Silicon Valley Bridge Bank NA in individual instances is easing a provision that startups must keep all of their capital with the bank as part of their loan agreements, borrowers and investors say. The bank is also moving to forgo penalties for borrowers who moved money out of the bank in recent days, in technical violation of their borrowing covenants.

“The bank is being super flexible and changing their policy on the percentage of deposits that one needs to have at the bank in order to get a loan. This is a great move by the bank, as everyone would now benefit from diversifying their capital across a number of banks,” said Matt Murphy, partner at Menlo Ventures.

A representative of the bank told Mr. Murphy that deposit flexibility for borrowers has been approved at the executive level of the bridge bank. The allowable percentages of capital that borrowers would be able to keep outside of the bank will vary and go up to 50% for some, he said.

Ratings firms didn’t warn of bank distress. Credit-rating firms held regional banks in high regard—until two of the biggest banking failures in U.S. history.

Rapid collapses at Silicon Valley Bank and Signature Bank cast doubt on whether bondholders will ever be repaid. Uninsured depositors worried they would lose their money before regulators stepped in to guarantee those funds.

When the banks failed, both had high marks from ratings firms. Though Wall Street and regulators have also often struggled to predict meltdowns, the collapses marked the latest blemish for the firms’ track records for warning of financial distress.

Why Washington chose to save SVB, Signature depositors. For more than a decade after the collapse of Lehman Brothers in 2008, Washington’s regulatory watchdogs sought to ensure that they would never again face fraught weekend deliberations about propping up the financial system from a bank failure. Last weekend, they did.

For the nation’s top economic officials—Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and White House National Economic Council director Lael Brainard—the challenge boiled down to a single decision: whether to employ a federal law allowing a “systemic risk exception” permitting the FDIC to guarantee deposits beyond the $250,000 limit per customer.

The government rescued banks, shareholders, auto makers and others in 2008. This time they were considering a rescue of bank depositors. The regulators triggered the rule to guarantee all deposits at Silicon Valley Bank and Signature Bank on Sunday, regardless of account size. It was the most powerful tool at their disposal to stop panicked households and businesses from pulling deposits from those and other banks.

• Citadel offered to buy Circle's SVB deposits. Circle at the time was dealing with the major cryptocurrency coin it operates, USD Coin, breaking its peg after the stablecoin issuer disclosed it had $3.3 billion stuck at Silicon Valley Bank. Citadel’s offer was meant to provide Circle with liquidity while its deposits were inaccessible.
• Yellen says banking system healthy. Janet Yellen appeared Thursday before the Senate Finance Committee and pushed back on the idea that the government’s steps, which also included a new Federal Reserve facility to lend banks money to meet withdrawal requests, represented a bailout of the banks.
• Senators say Fed may have missed 'clear warning signs' on SVB. Regulators may have missed clear warning signs about Silicon Valley Bank before it abruptly failed last week, a bipartisan group of 12 senators said in a letter Thursday to the Federal Reserve’s top supervisory official.
• The SVB tremors will shake SoftBank. SoftBank isn’t a bank, but the Japanese company—which has bankrolled many tech startups—will still be rocked by the seismic waves triggered by the collapse of Silicon Valley Bank.
• SVB's sudden collapse was particularly problematic for China startups. The sudden collapse of Silicon Valley Bank sparked acute anxiety among startups around the world. It was particularly problematic for firms in China that had put all their eggs in one basket after being courted by the California-based lender earlier on.

Eleven banks deposit $30 billion in First Republic Bank. The biggest banks in the U.S. swooped in to rescue First Republic Bank with a flood of cash totaling $30 billion in an effort to stop a spreading panic following a pair of recent bank failures.

The bank’s executives came together in recent days to formulate the plan, discussing it with Treasury Secretary Janet Yellen and other officials and regulators in Washington, D.C., people familiar with the matter said.

JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. are each making a $5 billion uninsured deposit into First Republic, the banks said in a statement, confirming an earlier report by The Wall Street Journal. Morgan Stanley and Goldman Sachs Group Inc. are kicking in $2.5 billion apiece, while five other banks are contributing $1 billion each.

• First Republic executives sold stock months before crash. The bank’s chief risk officer sold on March 6, according to government documents. Two days later, Silicon Valley Bank shocked the market and sent other banks into freefall. First Republic was among the worst hit. Executives had been selling for months, the documents show.

Credit Suisse rebound. Credit Suisse shares jumped after the bank said it would tap a more than $50 billion lifeline from the Swiss National Bank, but analysts remained wary about the lender’s prospects.

Investor confidence in the Swiss bank deteriorated rapidly this week after investors turned their attention to the struggling lender following the collapse of two large banks in the U.S.

The sudden evaporation of support from markets prompted the SNB, Switzerland’s central bank, to offer rescue funds late Wednesday. Credit Suisse called its use of the lending facility a “decisive action to pre-emptively strengthen its liquidity.” It posted what it called high-quality assets to the SNB as collateral to back up the loans.

Credit Suisse shares traded in Zurich ended up 19% Thursday after the bank announced it would tap the financing. Some Credit Suisse bonds also rose, though they didn’t regain all the lost ground from the previous day’s plunge.

• Panic abates at Credit Suisse. Now comes the hard part. Switzerland won’t let Credit Suisse run out of money. But official interventions can sometimes have the opposite effect by confirming that things got out of hand.
• Why is Credit Suisse in trouble? Here’s what you need to know on how Credit Suisse got here and what might happen next.

National CineMedia plans to cede control to lenders. National CineMedia Inc., the largest movie-theater advertising business in North America, is negotiating to hand control to senior lenders as part of a planned bankruptcy filing, people familiar with the matter said.

The company, which owes roughly $1.1 billion in debt, is in an extended grace period after missing interest payments owed to its bondholders last month. It has hired law firm Latham & Watkins LLP as restructuring counsel, while its operating subsidiary National CineMedia LLC recently tapped lawyers from Paul Weiss Rifkind Wharton & Garrison LLP, according to people familiar with the matter. FTI Consulting Inc. is serving as restructuring adviser, while Lazard Ltd is the company’s investment banker, these people said.

Negotiations with creditors have focused on reaching a prearranged restructuring deal that could be implemented through chapter 11, the people familiar with the matter said. The company is expected to continue operating as usual.

National CineMedia, which sells advertising under long-term agreements with movie-theater operators, has been struggling since the Covid-19 pandemic forced theaters nationwide to close temporarily in 2020 and Hollywood studios shortened the exclusive window during which films are available only in theaters, or released movies directly to streaming platforms.

Bank crisis adds a fresh crack in property’s foundations. The relationship between banking and real estate may be about to take a toxic turn.

The collapse of Silicon Valley Bank and Signature Bank will likely ripple through the mortgage market to commercial landlords. Signature Bank was one of the top commercial real-estate lenders in the U.S., especially in New York, where it had a 12% market share, according to Matthew Anderson, managing director at Trepp.

Alternative lenders such as specialist real-estate debt funds may step in to fill the hole, but they charge higher interest rates. Banks are also likely to ask more for loans as they compete for a dwindling pot of U.S. deposits. One way or another, the cost of borrowing will rise.

Maker of Bang Energy drinks sues to seize ousted CEO’s social-media accounts. The management team trying to revamp the Bang energy-drink brand after its bankruptcy have a new problem: Its recently fired CEO doesn’t want to hand over his social-media accounts.

In response, the drink’s manufacturer, Vital Pharmaceuticals Inc., took the unusual legal step Tuesday of filing a lawsuit against Jack Owoc, the company’s founder and former chief executive, seeking to wrest control of his Bang-branded accounts on Twitter, Instagram and TikTok.

The company, also known as VPX, said the accounts are key to maintaining a cohesive marketing strategy. It also doesn’t want to run the risk that Mr. Owoc, who was terminated as CEO and removed from the board last week, will post messages to his nearly 2 million social-media followers that could hinder the new management team’s efforts to sell the business, according to the lawsuit, filed in the U.S. Bankruptcy Court in Miami.

Mr. Owoc and his wife, Meg Liz Owoc, allegedly refused VPX’s request to turn over the social-media accounts. Tuesday’s lawsuit asks the court to rule that Mr. Owoc’s TikTok and Instagram accounts using the handle “@bangenergy.ceo,” as well as his @BangEnergyCEO Twitter account, belong to VPX.

Chinese developer Evergrande nears landmark restructuring deal. China Evergrande Group, the giant property company that defaulted on its U.S. dollar bonds more than a year ago, is close to striking a debt restructuring deal with foreign bond investors, according to people familiar with the matter.

The Guangzhou-based developer, the most indebted property company in the world, has agreed on the outlines of a deal that will give it breathing room by extending its debt maturities while allowing it to defer some coupon payments, the people said.

The deal would finally bring a resolution to the highest-profile debt restructuring negotiation in China’s property sector, which has suffered dozens of dollar bond defaults in the last two years after a sharp slowdown in sales. Chinese real-estate firms missed payments on more than $30 billion worth of international bonds in 2022, according to S&P Global Ratings, and investors said Evergrande’s restructuring could set a template for other debt workouts.

SBF received $2.2 billion from FTX. FTX and related entities transferred more than $3.2 billion to founders and former top employees, the company's new management said Wednesday evening. Most of those payments and loans came from Alameda Research, FTX said, citing forensic work. FTX identified the following transfers:

• $2.2 billion to Sam Bankman-Fried
• $587 million to Nishad Singh
• $246 million to Gary Wang
• $87 million to Ryan Salame
• $25 million to Sam Trabucco
• $6 million to Caroline Ellison

Executives additionally spent more than $240 million on such expenses as luxury property in the Bahamas and political and charitable donations, FTX said.

FTX’s former executives diverted billions of dollars of the exchange’s customer funds to Alameda Research, according to federal prosecutors. Some of the customer money transferred to Alameda was loaned to FTX executives, the Securities and Exchange Commission has alleged.

• The SEC previously said Mr. Wang took out $225 mil­lion, but the money was largely used by Mr. Bankman-Fried. Mr. Wang did with­draw ap­prox­i­mately $200,000 for his own pur­poses, according to the SEC.
• Messrs. Wang and Singh and Ms. Ellison have pleaded guilty to fraud charges and agreed to assist federal prosecutors.
• Mr. Bankman-Fried has pleaded not guilty and denied committing fraud and stealing customer funds.
• Messrs. Salame and Trabucco have not been charged by prosecutors.

ECB raised interest rates by a half percentage point. The European Central Bank raised interest rates by a half percentage point, pressing ahead with its fight against inflation despite concerns that this could exacerbate strains in the financial system.

The ECB said in a statement that it would increase its key rate to 3%, the highest level since 2008, while promising to provide liquidity support to the financial system if needed. The move follows consecutive half-point rate increases in February and December. Many investors had been betting that the ECB might unveil a smaller, quarter-point rate increase on Thursday after last week’s turmoil in the U.S. banking sector spread to Europe.

The ECB’s decision provides an early glimpse into how major central banks, including the Federal Reserve, might respond to recent signs of market distress that started with the collapse of two large U.S. banks last week. Both the Fed and Bank of England are set to hold their policy meetings next week.

Bank failures, like earlier shocks, raise odds of recession. Repeatedly in recent decades, various shocks pushed an already vulnerable economy over the edge into full-blown recession. The collapse this week of Silicon Valley Bank raises the odds that banking troubles will mark the next such tipping point.

After a week of federal interventions and market volatility, sizing up the lasting economic threat from the bank’s collapse boils down to two factors: Private sector confidence and the Federal Reserve’s handling of interest rates.

• Jobless claims fall. Applications for unemployment benefits fell last week, showing the U.S. labor market remains strong as other signs point to a cooling economy. Initial jobless claims, a proxy for layoffs, decreased by 20,000 to a seasonally adjusted 192,000 last week, the Labor Department said Thursday. Claims the prior week had increased by 22,000, revised data show, in part due to a jump in New York, where there was a school break.

• Mortgage rates fall for first time in six weeks. The average rate on the standard 30-year fixed mortgage fell to 6.6%, according to a survey of lenders released Thursday by mortgage-finance giant Freddie Mac.

• Silicon Valley Bank’s collapse and the threat of other troubled banks are “a wake-up call” to financial markets and companies that the Fed’s rate hikes have consequences. It may be a blessing in the disguise of a bank run.
• Tech executives discussed the implications of the SVB collapse in a panel discussion at a CIO Network event.
• It's no longer enough that sustainability chiefs know the technical stuff. They also need to be influencers and transformation leads for their companies.
• Retailers including Walmart and Whole Foods are pushing for lower prices from suppliers, leveraging their buying power now that supply-chain constraints have eased.

• Look inside the Washington, D.C., townhouse tied to FTX’s Sam Bankman-Fried that's back up for sale. (MansionGlobal)

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