SoftBank-backed construction startup after failed attempts to shore up its finances
Katerra, Inc. a construction startup company and one of SoftBank Group Corp.’s Vision Funds biggest investments, recently filed for bankruptcy protection in the United States to after failing to shore up its finances, The Wall Street Journal reports. The company said in a release that accompanied its Chapter 11 filing that its financial condition deteriorated in part because it could not get construction projects bonded or secure extra capital following the “unexpected bankruptcy filing of Katerra’s former lender.”
The filing came three months after Greensill Capital, another SoftBank Vision Fund-supported business, filed for insolvency protection. The firm had made hundreds of millions of dollars in loans to Katerra, according to The Wall Street Journal. The Vision Fund had put more than $2 billion into Katerra, making it one of the funds bigger investments. SoftBank had invested $200 million into the company last May and another $200 in December, giving it a majority stake. Katerra’s Chief Executive believed the new capital would shield it from needing bankruptcy protection. Unfortunately, SoftBank Chief Executive Masayoshi Son eventually named Katerra, along with Greensill and WeWork as investment regrets.
Katerra was founded in 2015 and looked to disrupt the construction industry by creating parts in factories and offering services like plumbing in architecture in one location. The company saw projects halted by delays and cost overruns. Its aggressive growth plan and debt load put a massive dent in its cash reserves. The COVID-19 pandemic led to even more construction project delays in some cities.
Greensill complicated the case
Meanwhile, Katerra’s dealings with Greensill only made its financial issues worse. Greensill specialized in short-term loans that gave businesses extra time to pay their bills. Katerra borrowed more than $400 million from Greensill, according to The Wall Street Journal. The debt was eventually packaged into notes and sold to investor in a Credit Suisse Group AG fund.
Things got worse for all parties when Greensill forgave Katerra’s loan after the latter ran into financial difficulties. SoftBank invested $440 million into Greensill because it expected the funds to go to Credit Suisse’s investors. Greensill instead put the proceeds of the SoftBank Investment in a bank it owned in Germany, according to a bankruptcy administrator’s report. The company reportedly took the money it received from SoftBank, including the $440 million and used it to enhance its bank’s capital position. Greensill also used the money for its operational costs. Credit Suisse said it’s now trying to recoup money from Katerra and a few other borrowers.
Katerra estimated its liabilities are somewhere between $1 billion and $10 billion, while its assets are between $500 million and $1 billion, per its bankruptcy filing. Separately, the company said its secured commitments of $35 million in debtor-in-possession financing from a SoftBank Group. The funds should help Katerra maintain operations during the Chapter 11 process.
Joe Dyton can be reached at joed@fifthgenmedia.com.
