SVB Financial Bonds Rise After $600 Million Cut to Tax Bill

(Bloomberg) -- SVB Financial Group secured a more than $600 million cut to its potential tax bill, boosting some bonds tied to the bankrupt former parent of Silicon Valley Bank and removing an obstacle in its path to repaying creditors in Chapter 11.

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The Internal Revenue Service agreed to reduce one of its tax claims from about $649 million to $43 million, according to court papers. The substantial reduction is related to resolution of a dispute over SVB Financial’s use of a “mark-to-market” accounting method to value certain financial products.

Some bonds tied to SVB were among the biggest gainers in high-yield debt trading Monday. The company’s 1.8% notes due 2026 rose as much as 2.625 cents on the dollar to 63.625 cents, according to Trace.

SVB Financial lawyer Christian Jensen said during a Monday bankruptcy hearing in New York that the IRS has agreed to continue discussing other matters that are unrelated to the mark-to-market dispute. However, none of the remaining matters “are of the same magnitude as the mark-to-market issue that posed a barrier to implementation of the debtor’s plan,” Jensen said.

The holding company is working on a finalizing a bankruptcy plan that would see it repay bondholders and other creditors owed $3.5 billion at least 40% of that sum. Creditors have until July 3 to vote on the plan and Judge Martin Glenn will consider approving it later this month.

SVB Financial and its bondholders are still facing a challenge with the Federal Deposit Insurance Corp. over what should happen to nearly $2 billion the parent company had on deposit at Silicon Valley Bank at the time it failed in March 2023.

The bankruptcy case is SVB Financial Group, 23-10367, US Bankruptcy Court for the Southern District of New York.

--With assistance from Jeremy Hill and Steven Church.

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