Greensill Faces Another Fund Freeze as It Explores Insolvency

In Germany, financial regulator BaFin in recent weeks appointed a special representative to oversee day-to-day operations of Greensill’s Bremen-based banking unit, according to people familiar with Greensill. BaFin has been conducting an audit of Greensill Bank since last fall, one of the people said.

Greensill founder Lex Greensill told employees on a conference call Tuesday that he is focusing on keeping the business operating and said there would be new owners by next week, according to people familiar with the matter.

In a statement, a Greensill spokesperson confirmed the company was in talks to sell a large part of its business. “While the structure of the new business is still being determined, we expect the transaction will ensure the majority of Greensill clients will continue to be funded in the same way as they currently are.”

Greensill’s business model was upended Monday after Credit Suisse suspended $10 billion in investment funds that contain securities created by the financial startup.

The Wall Street Journal reported that Greensill had hired restructuring advisers and could file for insolvency, the U.K. equivalent of bankruptcy, within days, a move that was sparked by the closure of the funds.

U.K.-based Greensill was founded in 2011 by Mr. Greensill, a former

Citigroup Inc.

and Morgan Stanley financier. It specializes in an area known as supply-chain finance, a form of short-term cash advance that lets companies stretch out the time they have to pay their bills.

In a typical supply-chain finance deal, Greensill pays a company’s suppliers sooner than they would normally expect, but at a discount. The company then pays Greensill the full amount down the road. The supplier gets paid early, the company has more flexibility over its cash, and Greensill is left with a small profit.

Greensill packages the cash advances it makes to companies into bondlike securities. The GAM and Credit Suisse funds invested exclusively in Greensill-generated assets, selling them on to investors looking to eke out higher returns than they could get from traditional money-market funds.

The Credit Suisse and GAM funds were crucial to Greensill’s business of extending financing to blue-chip clients including AstraZeneca PLC and

Ford Motor Co.

The funds also contained notes tied to Greensill’s lesser-known clients, including small startup businesses and companies that are considered higher-risk borrowers.

The business is continuing to operate, said people familiar with the company, and deals are still getting funded. If Greensill were to stop operating, it could cause disruption for its clients as they look for alternative forms of financing.

In the case of Credit Suisse, a key factor driving the fund closures was the decision in recent days by a credit insurance provider not to backstop new Greensill assets, Mr. Greensill told employees on the conference call Tuesday.

Credit insurance protects investors from losses and gives extra comfort in deals related to the types of less established or unrated companies on Greensill’s client list.

Last year, several Greensill clients ran into financial difficulties. They included NMC Health PLC, U.K.-based rent-to-own business Brighthouse Ltd. and Singapore commodities trader Agritrade Resources Ltd. All three filed for restructuring.

A Greensill spokesman said in October that credit insurance was in place for each of these companies.

Credit Suisse’s relationship with Greensill also includes a loan the Swiss bank made last fall, according to people familiar with the matter. The loan, which one of the people said is worth $140 million, remains outstanding and was meant as a bridge to help Greensill while it was trying to raise fresh equity, the people said. The existence of the loan was first reported by the Financial Times.

GAM Chief Executive

Peter Sanderson

said Tuesday that the GAM fund contained investment-grade assets and that there were no valuation concerns. In the fund-management industry, when a fund is liquidated, the manager sells off the assets aiming to return the proceeds to investors to make them whole.

Shutting down the fund is “in the best interests of all clients,” Mr. Sanderson said. The fund has five institutional investors, a person familiar with the matter said. The closure would mark the end of GAM’s business relationship with Greensill, which started in 2016.

Credit Suisse froze its funds Monday because of difficulties ascertaining accurate valuations of some assets created by Greensill. The Journal reported Sunday that Credit Suisse had grown concerned about the funds’ exposure to a single client, U.K. steel magnate

Sanjeev Gupta.

GAM on Monday said it had no exposure to businesses affiliated with Mr. Gupta. In July 2018, GAM froze a $12 billion fund after an internal whistleblower raised concerns about how the fund valued the Greensill assets at the time. These included hundreds of millions of dollars of illiquid assets tied to Mr. Gupta’s businesses.

Greensill spent Tuesday going through the company’s books with

Apollo Global Management Inc.,

which has been in talks to take over some of its business, according to a person familiar with the discussions.

Greensill’s main financial backer, SoftBank’s Vision Fund, is expected to write down its entire $1.5 billion investment, the Journal reported Monday.

One plan is to sell the good parts of Greensill, including performing assets and the core operating business, according to people familiar with the talks. The rest of Greensill, including riskier loans to Mr. Gupta’s companies and supply-chain financing deals Greensill did with other SoftBank Vision Fund companies, would be dealt with separately.

—Patricia Kowsmann contributed to this article.

Write to Duncan Mavin at duncan.mavin@wsj.com and Julie Steinberg at julie.steinberg@wsj.com