Synapse Bankruptcy Filings: What You Need To Know

TabaPay To Buy Assets For $9.7m, Evolve To Cover Shortfall In End-User Funds

Hey all, Jason here.

I know, it’s a Tuesday, yet here I am in your inbox. Synapse officially filed for bankruptcy yesterday, and there are a number of interesting bits in the 600+ pages of documents that just can’t wait until next Sunday.

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Synapse Bankruptcy Filings: What You Need To Know

Yesterday, Monday, April 22nd, Synapse officially filed a voluntary petition for Chapter 11 bankruptcy — and a slew of additional emergency motions and documentation, totaling 600+ pages (though this includes exhibits and duplicative material.)

While I haven’t a chance to read every page word for word, I thought it was worth flagging some of the more notable takeaways:

• Per the voluntary petition for bankruptcy, Synapse reports both estimated liabilities and assets between $10 million and $50 million and estimates between 50 and 99 creditors.

• At the time of the bankruptcy, Synapse had approximately 100 fintech clients with a total of about 10 million end users.

• According to company cofounder and CEO Sankaet Pathak’s sworn statement, at one point, Synapse entered into negotiations to purchase a bank, during which the company received a term sheet to raise an additional $100 million in equity funding — which was approved by Synapse’s board but was “vetoed” by “certain” investor-directors.

• One-time client Mercury had approximately $3 billion in deposits held through its relationship with Synapse when it decided to wind down that partnership and work directly with Evolve instead.

• Synapse has approximately $2 million in cash on hand.

• Synapse may owe deposit “rebates,” interest, and interchange payments to fintech clients, who in turn, may owe funds to end users.

• Some of the largest unsecured creditors include:

  • Kroll Associates — $473,662

  • Thompson Reuters (disputed) — $290,822

  • Lineage Bank (disputed) — $276,812

  • Amazon Web Services — $261,509

  • Jones Day — $229,275

  • Trulioo — $225,754

  • Mastercard (disputed) — $210,900

  • Goodwin Procter — $199,835

  • Lowenstein Sandler — $166,921

  • First Horizon Bank — $157,427

  • Fiserv — $102,000

  • TabaPay — $67,500

  • Yotta — $65,172

• Synapse has at least two substantial secured creditors, including owing about $1.5 million to Silicon Valley Bank and about $7.2 million to TriplePoint Capital.

• Synapse and TabaPay have entered into an Asset Purchase Agreement, in which TabaPay would pay $9.7 million and additional consideration to buy substantially all of the assets of Synapse, including its non-bankrupt wholly-owned subsidiaries Synapse Credit LLC, which holds state lending licenses, and Synapse Brokerage LLC, which holds a broker-dealer license.

• Although there is a pending purchase agreement, alternate buyer(s) could place a bid for Synapse’s assets; however, according to supporting documentation, Synapse has been seeking a buyer for some time and does not expect to find a better offer than TabaPay’s.

• TabaPay’s agreement to purchase Synapse’s assets has an initial closing date of April 30, 2024; a second closing pending FINRA approving the transfer of Synapse’s broker-dealer license; and a final closing date pending government and third-party consents related to Synapse’s lending entity.

• The purchase agreement is contingent on satisfactory program reconciliation of demand deposit accounts, saving accounts, reserve accounts, and FBO accounts at banks being reconciled to Synapse’s records and fully funded.

• The purchase agreement is also contingent on the bankruptcy court approving Synapse’s settlement with one-time partner Evolve Bank & Trust.

• The proposed settlement would resolve claims Synapse and Evolve have against each other, including regarding funding and reconciliation of FBO and reserve accounts, and Synapse’s claim of underpayment of fees based on FBO balances.

• The proposed settlement requires Evolve “to ensure that all account balances of End-Users in FBO Accounts are fully funded to Taba’s satisfaction,” though it is worth noting this is limited to end user balances held at Evolve, and doesn’t include accounts at other current or former Synapse partner banks, which include Lineage, AMG, American, and First Horizon.

• Evolve will also pay Synapse’s bankruptcy estate $2 million and maintain the existing FBOs to facilitate the sale to TabaPay. If approved, Synapse and Evolve would provide each other a mutual general release of claims.

• Mercury continues to pursue a claim against Synapse for approximately $30 million, and Synapse intends to “aggressively” defend itself against that claim while continuing to pursue its counterclaim of $36 million.

• Based on Synapse’s $2 million cash in hand and potential $9.7 million asset sale to TabaPay, it seems likely that the two large secured creditors, SVB and TriplePoint, will be repaid in full, with some additional funds available to unsecured creditors.

A hearing is set for tomorrow, April 24th, at 2:00pm regarding Synapse’s emergency motion to authorize the company’s use of cash collateral, granting adequate protection, scheduling a final hearing, and granting related relief.

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