Having warned investors on 15 October in a regulatory filing that it expected to default on payments due to its Chinese lender and investor Wanxiang Group, the loss-making Massachusetts-based ‘Nanophosphate’ lithium iron phosphate battery supplier A123 Systems has filed for bankruptcy in the US Bankruptcy Court in Wilmington. Delaware. According to a Bloomberg report, the company has listed in the filing assets of US$459.8m and debt of US$376m as of 31 August.
The 15 October SEC 8-K filing had noted: “On 16 October 2012, the company expects to be in default under certain of its material debt agreements. The company does not expect to timely pay the October Interest Payment due today, 15 October 2012, under the 2016 Notes which non-payment will result in a default under the indenture governing the 2016 Notes, US$143,750,000 in aggregate principal amount of which are currently outstanding. Similarly, the company does not intend to timely pay a 6% P&I Payment due today, 15 October 2012, under the 6% Notes, US$2,759,118.69 in aggregate principal amount of which are currently outstanding, which non-payment will result in an event of default under the 6% Notes and will permit the holders of the 6% Notes to require them to be redeemed.”
The creditor concerned is Wanxiang America Corp., a subsidiary of the Chinese automotive supplier Wanxiang Group which in August agreed to fund A123 Systems and eventually acquire a majority stake in its equity. Wanxiang agreed on 12 October a 30-day period of grace before default on the payments above become definitive.
A123 Systems’ 8-K filing added: “The company is considering a broad set of strategic alternatives to address its liquidity constraints including one or more potential transactions and is preparing for all contingencies as part of that process. However, there is no assurance that the company will be able to pursue a strategic alternative that will allow it to continue to operate its business as a going concern. The company may not have sufficient cash to fund operations and may need to seek the protections provided under the US Bankruptcy Code to, among other things, obtain access to new financing and facilitate one or more of the transactions it is contemplating. No assurance can be given that the company will be able to avoid restructuring, reorganisation, or a bankruptcy filing.”
A123 Systems warned of going-concern doubts in May 2012, having incurred unexpected costs of unconfirmed value in replacing batteries it had supplied to Fisker Automotive, Inc. for its first, Karma PHEV model. The firm was the subject of critical attention from Republicans in the US Congress when, having received a US$249.1m federal grant to build a US assembly facility, it announced in August this year that it was expecting the Hangzhou-based Chinese Tier 1 automotive supplier Wanxiang Group Corporation to become its majority shareholder. The company assured Congress that its plans to manufacture batteries in the US remained intact.
A123 Systems had confirmed on 16 August that Wanxiang Group planned to acquire a controlling stake of up to 80%. Under the terms of definitive agreements, Wanxiang planned to invest up to US$465m in A123, which includes an initial credit extension of US$25m that A123 expected to receive in the week following the announcement. The full investment from Wanxiang was expected to provide A123 with “the capital necessary to strengthen the company’s competitive position in the global vehicle electrification and grid energy storage markets.”
After August, Wanxiang was to provide A123 with up to US$75m in initial debt financing under a senior secured bridge facility. In addition to the initial credit extension of US$25m, US$50m would be funded after the satisfaction of certain closing conditions. Subsequently, again upon satisfaction of certain closing conditions, Wanxiang would purchase US$200m aggregate principal amount of A123’s 8.00% senior secured convertible notes. The agreements also include the potential for Wanxiang to invest up to an additional US$190m by exercising the warrants that will be issued in connection with the bridge facility and the 8.00% convertible notes for cash. Incurrence of the remaining US$50m of loans under the senior secured bridge facility was subject to the satisfaction of certain approvals and conditions, including receipt of favorable determination from the Committee on Foreign Investment in the US and receipt of Chinese government approvals.
Reporting yesterday’s filing, Bloomberg noted that A123 Systems had posted “at least 14 straight quarterly losses”, and that its shares had fallen 85% this year. The agency could obtain no response to its enquiries from a representative of Wanxiang Group.
Besides Fisker Automotive, A123 Systems’ customers for low-volume projects have included BMW, SAIC, Geely, BAE Systems (for its HybriDrive bus hybrid powertrain), and Tata Motors, and in the UK, Northern Powergrid.
