The California-headquartered construction startup Katerra announced that it filed for Chapter 11 bankruptcy. Given the company's ties to Softbank and Greensill Capital, this type of corporate financial restructuring feels deeper than a single startup's unfortunate demise.
What happened to Katerra to bring it to bankruptcy? How do the lenders behind Katerra play into the series of events?
Katerra announced its $35 million bankruptcy filing.
According to Katerra, there were three factors that played into the Chapter 11 filing. The company's announcement said, "The rapid deterioration of the company’s financial position is the result of the macroeconomic effects of the COVID-19 pandemic on the construction industry, inability to procure bonding for construction projects following the unexpected insolvency proceedings of Katerra’s former lender, and unsuccessful attempts to secure additional capital and business."
Ultimately, Katerra obtained $35 million in DIP (debtor-in-possession) financing. Only companies that have filed and been approved for Chapter 11 are able to acquire DIP financing.
Katerra already notified its employees of the event prior to making the announcement. The company maintained a focus on tech in construction. Katerra has experienced numerous financial woes over the last few years.
According to Katerra, "many of its U.S. projects will be demobilizing," but international projects will be largely unaffected.
WeWork backer Softbank also backed Katerra
Softbank instituted a multi-billion-dollar deal in WeWork when the coworking startup's private valuation sang to the tune of $47 billion. Now that WeWork is looking toward a 2021 IPO, its valuation has sunk down to about $2.9 billion. Softbank undoubtedly lost a lot of money in the initial investment, and it also backed Katerra. In fact, Katerra earned at least $2.2 billion in investments from the SoftBank Vision Fund. Of that investment, $200 million (which came later on in December 2020) went toward helping Katerra receive bankruptcy protection. Obviously, it didn't work as planned.
Did Greensill Capital play a role in Katerra's demise?
Katerra didn't name the lender that played a role in its bankruptcy, but Greensill's involvement isn't deniable. Greensill, also backed by the Softbank Vision Fund, lent hundreds of millions to Katerra. Greensill filed for insolvency protection in May, which impacted all of the companies that it served as the lender for.
Greensill's founder, Lex Greensill, lost billions of his net worth during the insolvency protection filing. With his company's inability to pay off debt, creditors are still coming after it. Recently, the governor of West Virginia sued Greensill for $700 million in debt, while other creditors are after $4 billion euros.
Upon bankruptcy, Katerra faces more controversy
Softbank has a lot of involvement with unsuccessful investments. Meanwhile, Greensill Capital's impact continues to ripple out. Katerra's place in it all has yet to be defined outright, but its Chapter 11 bankruptcy shows just how much corporate interconnectedness ripples out. For Katerra employees, especially those in the U.S., this involvement with the larger controversy came at a great cost.