The collapse of Silicon Valley Bank (SVB) last week left at least one craft brewery scrambling heading into last weekend.
Castle Island Brewing Co., which operates a Norwood, Massachusetts-based taproom brewery and a second location in South Boston, found its bank accounts “completely frozen” as of Friday, as federal regulators assumed control of the bank’s operations, founder and CEO Adam Romanow told Brewbound.
SVB catered to tech firms, life sciences and health care companies and winemakers. Craft breweries don’t appear to be among the bank’s favored clientele. So how did Castle Island find itself among SVB’s client list? Through the 2021 acquisition of Boston Private Bank, which was the brewery’s previous lender.
Romanow began following the SVB situation last Thursday, after a friend flagged the stock of the bank’s parent company, SVB Financial Group, plummeting more than 60%. By Friday, California regulators shut down the bank and placed it in receivership under the control of the Federal Deposit Insurance Corporation (FDIC).
As the FDIC intervened, Romanow said he and Castle Island’s accountant attempted a Hail Mary to transfer the company’s money out of SVB to an account at a different bank.
“Everything was completely locked up,” Romanow said. “And then it was 72 more hours without knowing if anything over $250[K] was going to be safe.”
Although the brewery’s payroll had already hit employees’ bank accounts, the company wasn’t sure checks to its vendors, including its credit card processing company, would clear. The brewery continued operations as usual over the weekend.
In the midst of the uncertainty, Romanow called the brewery’s loan officer on Friday to see if he could get any additional info. However, the loan officer was unaware that the FDIC had just seized control of SVB. Romanow recalled accidentally breaking the news that the FDIC seized control of the bank.
“She said, ‘What do you mean?’ And I said, ‘Oh, I am so sorry to be the one to tell you this, but the FDIC just shut down the bank,’” he recalled. “‘No, seriously, what are you talking about?’ [she said.] I said, ‘I’m looking at a Wall Street Journal article from eight minutes ago that says the FDIC has seized control of Silicon Valley Bank.’ And she goes, ‘Can I call you back?’ I haven’t heard from her since.”
In a joint statement Sunday, the U.S. Department of the Treasury, Federal Reserve and FDIC said SVB’s banking clients would have access to their money as of Monday morning and “no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” The move backstopped around $175 billion held by SVB, 85% of which was uninsured, according to Time.
“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the statement read.
On Monday, the FDIC reopened access to the money after transferring all deposits (insured and uninsured) and all assets from SVB to a newly created FDIC-operated “bridge bank” called Silicon Valley Bank N.A.
Castle Island transferred all of its operating cash out of SVB to a safe account on Monday, Romanow confirmed. A couple of restricted accounts used for security deposit collateral remain with SVB though.
“So we need to figure out how we’re going to get that out,” Romanow said. “And then we also have a commercial term loan and a line of credit with the bank. Right now, our line of credit is permanently frozen, so we can’t draw on it. And our term loan, we need to keep paying, but we’re not sure who ultimately is going to end up owning it. And getting answers even today is impossible. I’m not even sure the answers exist, to be completely honest.”
The other potential pain point is that Castle Island’s term loan, which was used for the construction of the taproom in South Boston, has a better interest rate than those available today. Romanow is unsure of what will happen with those loans.
“Even if it’s not a bank that acquires all the assets of SVB, they may repackage a portion of loans and sell them and then at that point,” he said. “Depending on who that bank is, maybe they want to keep the loan. Maybe they don’t, in which case, they could sell it to somebody else. Or they can try and force us out somehow. There are a million different options.”
Although Castle Island will be made whole, the brewery now finds itself searching for a new bank in a tough lending environment, Romanow said.
“At least we have the certainty that our money is safe, that we will be made whole,” Romanow said. “The painful part for us now is we have to go out and find a new bank and one of the tightest lending environments we’ve seen in a very long time.
“We’ve been with three banks in the last four years, and it’s just disruptive to the business,” he continued. “It’s not going to kill us, but it takes a lot of focus and a lot of time to move banks, to move that relationship, and it’s just a distraction at frankly a challenging time of year because we’re trying to ramp up. This week is the week of St. Patrick’s Day, right? Especially in South Boston, this is our Mardi Gras. This is our big dance. And so my focus should be on this, and here I am trying to move a fairly complex banking relationship on short notice.”