LONDON – Greensill Capital filed for insolvency on Monday after losing insurance coverage for its debt repackaging business and said in its court file that its largest client, GFG Alliance, had started to default on its debts.

Greensill began to collapse last Monday when its main insurer stopped providing credit insurance on $ 4.1 billion in debt in portfolios it had created for clients, including Swiss bank Credit Suisse.

The court document supporting Greensill’s insolvency claim stated that without this insurance, Greensill was no longer able to sell debt-backed notes to investors, or fund clients such as GFG in return.

“GFG has fallen into serious financial difficulties,” the court record said. “GFG has started to default on its obligations.”

A spokesperson for GFG, which is controlled by Indo-British steel magnate Sanjeev Gupta, declined to comment on the default claim on file, or the size of Greensill’s exposure to GFG.

Last week, GFG said it had sufficient funds and that its business was operationally sound.

Greensill had approximately $ 5 billion in exposure to GFG, the Financial Times reported on Monday, citing lawyers for Greensill.

UK unions said they would meet with officials from Gupta’s Liberty Steel on Tuesday to seek assurances on jobs after Greensill’s insolvency claim.

Accounting firm Grant Thornton said in a statement he had been appointed a director of Greensill’s two main UK companies, which oversaw its business of buying short-term debt and converting into bonds to sell to investors.

Apollo Sale

Grant Thornton has agreed in principle to sell Greensill’s intellectual property and technology platform for processing client payments to U.S. private equity group Apollo Global Management Inc. for $ 60 million, according to the court filing.

Apollo is expected to announce a deal the next day and the group plans to continue operating Greensill’s supply chain finance business for premium customers, a source familiar with its plans said.

Apollo, Greensill and Credit Suisse declined to comment.

The collapse of Greensill, whose founder, Lex Greensill, received a State Honor from Great Britain in 2018 for his services to the economy, could lead to a series of regulatory investigations and cause funding problems to its high-risk borrowers.

Credit Suisse told investors most of the money in its supply chain finance funds is insured, but the bank declined to confirm the funds’ current insurance status.

Greensill said it provided more than $ 143 billion in financing in 2019 to 10 million customers and suppliers.

In Germany, where Greensill runs a bank, financial regulator BaFin has filed a criminal complaint with prosecutors in Bremen, where the lender is based. The precise details of the complaint are not known.

BaFin also suspended Greensill Bank’s operations, saying there was an imminent risk of bankruptcy. The German bank kept Greensill Capital’s short term loans on its balance sheet before they were securitized and sold to Credit Suisse.

Several German municipalities have reported investing millions of euros in Greensill Bank, attracted by its lack of negative interest rates, and some are asking the federal government to cover any losses.

BaFin said an audit found Greensill Bank could not provide evidence of claims on its balance sheet purchased from GFG Alliance. GFG did not respond to requests for comment on BaFin’s findings.

The Bank of England’s Prudential Regulation Authority has taken action against GFG’s own trade finance arm, Wyelands Bank, ordering it to reimburse all of its depositors, without specifying the reason.

GFG declined to comment on the reasons.

Allen & Overy represents Greensill and Kirkland & Ellis and Mayer Brown represents Apollo.

(Additional reporting by Rachel Armstong and Abhinav Ramnarayan in London; editing by Alexander Smith and David Clarke)