Silicon Valley Bank: Life360 Exposure Could Reach $5.6 Million, With Significant Business Interruption

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San Francisco area-based Life360, Inc. is evaluating the impact of Silicon Valley Bank (“SVB”) being closed on Friday, March 10, 2023 (U.S. Pacific time) by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.  According to the FDIC, all insured depositors of SVB will have full access to their insured deposits no later than Monday, March 13, 2023 (U.S. Pacific time). The FDIC has stated that it will pay uninsured depositors an advance dividend, which will be a portion of the amount of uninsured deposits they have at SVB.  Uninsured depositors are expected to receive a receivership certificate for the remaining amount of their uninsured funds. A receivership certificate entitles the holder to the remaining amount of their uninsured funds to be satisfied from (but only to the extent of available) proceeds from the liquidation of SVB’s assets in the form of additional dividends.  As the FDIC sells the assets of SVB, future dividend payments may be made to uninsured depositors.

Life360 exposure

As of March 10, 2023, the Company had cash and cash equivalents of approximately $95.1 million, including $6.1 million in deposits with SVB, and $75.4 million  in shares of money market mutual funds managed by Morgan Stanley, Blackrock and Western Asset, which are invested in short-term, AAA-rated U.S. Government Treasury and Government Agency securities. Although SVB acted as custodian of these accounts, the Company understands that these accounts were not co-mingled with SVB’s assets.  As a result, the Company expects that the FDIC should act to liquidate the funds and disburse these amounts, or otherwise make the funds available, to the Company (subject to FDIC confirmation of customer ownership) in the near term, but timing has not been confirmed by the FDIC.

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In addition, $13.3 million, representing most of Life360’s restricted cash, is held by PNC Bank as escrow funds related to the Tile acquisition. An additional $0.3 million is held in an operating account with the Bank of Montreal.

The remaining $6.1 million was held in several operating and collateral accounts with SVB as detailed in the table below and is therefore under the control of the FDIC.  Across the three entities in the group, the Company expects to have access to approximately $0.5 million in the aggregate in FDIC-insured funds.  The FDIC has stated that it expects to pay uninsured depositors an advance dividend.  There remains considerable uncertainty as to the extent of these dividends and the overall eventual recovery of these funds, if any, will depend on the success of the FDIC in selling the assets of SVB. As a result, management believes that its exposure to loss may be between zero and approximately $5.6 million.

Management currently expects there to be material updates as to the timing of release of funds prior to the opening of U.S. public markets tomorrow (Monday U.S. time).  The Company will provide the market with an update as soon as any material further information comes to hand.

The SVB closure occurred at the peak of the Company’s monthly cash cycle and as a result the Company expects its cash position at the end of the first quarter to be in line with previous estimates (assuming normal operating cadence) in the range of $70-75 million, including restricted funds.

Notwithstanding the closure of SVB, the Company continues to believe that its existing cash and cash equivalents balance and cash flow from operations will be sufficient to meet its working capital, capital expenditures, and material cash requirements from known contractual obligations for the next twelve months.

TalkFintech Bureau
TalkFintech Bureauhttps://talkfintech.com
TalkFintech is focused on the latest financial sector technologies and tools- covering all tech used by banks, investors, insurance, and wealth management sectors- and also conversations on retail financial management tools.

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