Fisker Automotive files for Chapter 11 Bankruptcy on November 22, 2013.
Fisker Automotive Holdings, Inc. (Case No. 13-13087) and Fisker Automotive, Inc. (Case No. 13-13086) filed for Chapter 11 on November 22, 2013 in the United States Bankruptcy Court for the District of Delaware. Fisker manufactures a $100k plug-in hybrid car driven by celebrities.
“After having evaluated and pursued all other alternatives, we believe the sale to Hybrid and the related Chapter 11 process is the best alternative for maximizing Fisker Automotive’s value for the benefit of all stakeholders,” Marc Beilinson, Fisker chief restructuring officer, said today in a statement.
Mark Beilinson, the Debtor’s Chief Restructuring Officer further discusses the bankruptcy filing in the Debtor’s filings:
“The Debtors were founded in 2007 with the goal of designing, assembling, and manufacturing premium plug-in hybrid electric vehicles (“PHEVs”). To facilitate these efforts, the United States Department of Energy (“DOE”) arranged for loans to the Debtors from the Federal Financing Bank (the “FFB”) in an aggregate amount of up to approximately $530 million pursuant to the Advanced Technology Vehicles Manufacturing Incentive Program. The Debtors drew a total of approximately $192 million on these loans and also raised significant amounts of equity financing from a wide range of venture capital, private equity, and sovereign wealth funds. Beginning in 2007, the Debtors established a global network of vendors, suppliers, distributors, and retailers, along with an international reputation for both their award-winning Karma sedan and their innovative hybrid electric powertrain technology. The Karma sedan is the world’s first environmentally responsible luxury PHEV and was the centerpiece of the Debtors’ prepetition manufacturing and sales efforts. The Debtors sold approximately 1,800 Karma sedans to individual buyers through a global network of independent retailers and distributors.
“Despite these accomplishments, the Debtors were unable to achieve certain financial covenants and project milestones embedded in their loan agreements with DOE. In particular, the Debtors’ loan agreements with DOE originally required the Debtors to produce, manufacture, and sell 11,000 Karma sedans by February 2012. But the Debtors were obliged to delay serial production of the Karma until October 2011 for a number of reasons, including completion of vehicle and manufacturing engineering, finalizing tooling and component specifications with the Debtors’ supply chain, and completing safety and emissions testing and certifications.
“Further, once serial production of the Karma began, vehicle sales failed to meet expectations. Factors affecting sales included negative press, initial quality and performance issues, lingering effects of the global financial recession, and challenges arising from the Debtors’ supply chain. For example, the high-voltage battery packs for the Karma, an essential component for any electric vehicle, and which were manufactured exclusively by A123 Systems, Inc.3 (“A123”), exhibited a number of performance problems. The Debtors initiated a voluntary safety recall for a small number of Karma vehicles almost immediately following the Karma’s 2011 launch relating to A123’s misalignment of internal hose clamps. A123 also announced a service campaign in March 2012 relating to a manufacturing defect that affected the durability and performance of all battery packs manufactured at A123’s Livonia, Michigan facility. Moreover, A123 suspended Karma battery production in October 2012 when it sought bankruptcy protection. As a result, the Debtors were left without a high-voltage battery supplier, and the Debtors have not restarted Karma vehicle production since a previously scheduled seasonal shutdown commenced in July 2012.
“The Debtors have at all times been mindful of their commitments to stakeholders, their obligation to preserve and maximize value, and the public interest at issue here. To this end, and as discussed in greater detail below, the Debtors explored a series of alternatives to obtain financing to fulfill these commitments and to maximize stakeholder value, including with respect to DOE. Among other things, the Debtors sought additional equity and debt financing to refinance the DOE loan and provide additional working capital. More recently, the Debtors engaged with financial sponsors, original equipment manufacturers (“OEMs”), and other parties regarding a strategic investment or a going concern transaction. In this process, the Debtors retained experienced investment banking, financial, and restructuring advisors to facilitate their review, analysis, and development of potential alternatives. The Debtors also undertook steps to minimize costs and to preserve liquidity. These steps included, among other things, the difficult determination to conduct headcount reductions and to initiate nonpaid employee furloughs in the spring of 2013. Notwithstanding these efforts, the Debtors’ cash position continued to erode.
“To preserve and maximize value, the Debtors sought to implement a sale process in connection with a chapter 11 filing. Throughout the spring of 2013, the Debtors engaged insubstantial, good faith negotiations with DOE regarding the Debtors’ consensual use of its cash collateral to help fund a chapter 11 case and sale process. Despite significant efforts by the parties, these negotiations were ultimately unsuccessful, and DOE applied the approximately $20 million of cash that it controlled to the Debtors’ outstanding indebtedness.
“Since that time, the Debtors have operated with limited junior funding provided by related parties. The Debtors’ operations have remained curtailed, and headcount reductions have continued through both additional layoffs and voluntary attrition. The Debtors have also continued to engage in discussions and negotiations surrounding various restructuring transactions in an effort to maximize stakeholder value. Meanwhile, DOE conducted a public marketing and auction process for the purchase of its interests in the DOE loan pursuant to a competitive auction process. On October 7, 2013, an affiliate of Hybrid Tech Holdings, LLC emerged as the successful bidder, and the parties closed the loan purchase on November 22, 2013.
“Recognizing that this purchase would provide the Debtors with an opportunity to move forward, the Debtors entered into extensive arm’s-length discussions with Hybrid Tech Holdings, LLC (the “Purchaser”) and its affiliates regarding the Purchaser’s potential acquisition of certain of the Debtors’ assets through a credit bid of all or part of the DOE loan. These discussions culminated in the parties’ entry into a purchase agreement (the “Purchase Agreement”), as more fully described herein, pursuant to which the Purchaser would acquire substantially all the Debtors assets, with the remainder of the estates’ assets to be administered through a chapter 11 plan of liquidation. The Debtors have commenced these chapter 11 cases to facilitate a timely and efficient sale and plan process that will preserve and maximize the value of the Debtors’ estates. …
“The Debtors were formed in 2007 with the goal of designing, engineering, and manufacturing premium PHEVs. To this end, the Debtors developed an electric vehicle with extended range, which they trademarked as “EVer.” The Debtors also established an international reputation as a leading developer of premium extended range PHEVs. The Debtors’ Karma sedan is the world’s first environmentally responsible luxury PHEV, and was developed by a highly skilled team of automotive designers and engineers located in the United States. The Karma sedan was also the centerpiece of the Debtors’ operations and won awards for excellence, innovation, and environmental responsibility from Time magazine (identifying the Karma as one of the “Green Design 100” in 2009), Top Gear Magazine (identifying the Karma as “Luxury Car of the Year” in 2011), and Automobile Magazine (identifying the Karma as “Design of the Year” in 2012).
“The Karma sedans were assembled by Valmet Automotive, Inc. (“Valmet”) in Uusikaupunki, Finland. The Debtors had planned, however, to build future vehicles at a company-owned and -operated assembly facility in the United States to improve volumes and to leverage their design, engineering, and technical expertise.
“To that end, in July 2010, the Debtors acquired a manufacturing facility covering approximately 3.2 million square feet located on approximately 142 acres at 801 Boxwood Road, Wilmington, Delaware (the “Delaware Facility”). The Debtors purchased the Delaware Facility through the General Motors bankruptcy proceedings for a cash purchase price of approximately $21 million. The Delaware Facility is equipped with a number of technical and utility systems for automotive manufacturing, including a paint facility, powerhouse capability, a conveyor system, a wastewater treatment facility, and an emissions abatement system. The Debtors have not conducted active operations at that location.
“The Debtors obtained components and systems for the Karma’s assembly through a number of third-party supply relationships. For example, the Debtors had a licensing and tool use agreement with a General Motors affiliate. Through this relationship, the Debtors were able to purchase parts and components directly from suppliers that also sold to General Motors and use General Motors tooling to manufacture the parts or components. In addition, the Debtors relied on a number of “single source” suppliers for particular components. One such “single source” supplier was A123, whom the Debtors contracted with in January 2010 to act as the exclusive manufacturer of the Karma sedan’s high-voltage battery pack, as discussed more fully below.
“The Debtors began delivering the Karma sedan for sale to the general public in October 2011. This milestone was the culmination of the Debtors’ four-year effort to bring the Karma sedan from design, to concept car, to finished product ready for the showroom floor. The Karma sedan retailed for approximately $100,000 to $120,000, subject to consumer specifications and corresponding purchase price adjustments. The Debtors assembled approximately 2,700 Karma sedans, and approximately 1,800 Karma sedans have been sold to individual customers.
“The Debtors also planned to have another platform, the “N” or “Nina Platform,” which included the prototype Atlantic sedan. The Debtors made significant progress developing the N Platform, including entering into a number of additional supply and service agreements with third-party vendors and suppliers. These agreements included an engine purchase, supply, and development agreement with Bayerische Moteren Werke Aktiengesellschaft, or BMW. The Debtors first unveiled the Atlantic sedan at the April 2012 New York Auto Show, but have not engaged in active production of the Atlantic sedan or other N Platform derivatives. …
“The Debtors currently employ approximately 21 full-time employees, located primarily at their Anaheim, California headquarters, and primarily tasked with engineering, product development, financial, and reporting functions.…
“As of the Petition Date, the Debtors had approximately $203.2 million in funded debt and related obligations outstanding, consisting of the DOE Facility, the SVB Working Capital Facility, the DEDA Loan, and the Related Party Notes (each as defined herein). As of the Petition Date, the Debtors’ funded debt obligations, excluding accrued interest, are summarized as follows:
DOE Facility $168.5 (million)
SVB Working Capital Facility $6.6
DEDA Loan $12.5
Related Party Notes $15.6
“Since their inception, the Debtors pursued a strategy committed to the design, development, engineering, and production of high performance and environmentally responsible PHEVs. This strategy was reflected by the Debtors’ loan agreements, through which the Debtors were obliged to, among other things, achieve sales in excess of 11,000 vehicles less than 5 years from their initial inception and to employ approximately 1,500 full-time employees in automobile manufacturing here in the United States. The Debtors’ ability to achieve their original sales and production goals, however, was limited by a combination of negative press, lingering effects of the global financial recession, unforeseen business disruptions, and liquidity shortfalls, among other factors.
“The Debtors, like most OEMs, were responsible for the overall engineering, design, and development of the Karma sedan. In this process, the Debtors leveraged the expertise of a wide range of suppliers and service providers to complete the engineering work and to manufacture the thousands of parts and components necessary to complete each Karma sedan. In addition, and as noted above, Karma assembly was contracted to Valmet under the Valmet Agreement—although, the Debtors’ business plan contemplated that assembly operations could ultimately be brought “in house.” As a result, Karma production remained dependent on the seamless interaction of suppliers located across North America, Europe, and Asia.
”Building the Fisker platform, supply chain, and network of Retailers and Distributors from scratch ultimately delayed the initial Karma launch from 2009 until 2011. This delay created significant challenges with respect to the Debtors’ February 2012 deadline to sell more than 11,000 Karma sedans at an average selling price of $87,900, as required by the DOE Loan Agreement.14 The Debtors further believe that sales were adversely affected by negative press with respect to Karma performance, their existing liquidity position, and the A123 battery recall.
“In particular, these challenges were exacerbated by severe complications arising from the Debtors’ relationship with A123. As noted above, A123 was formerly the exclusive high-voltage battery pack manufacturer for the Karma sedan. The Debtors encountered a number of issues with the performance of the A123 battery packs almost immediately following the Karma’s launch in October 2011. At or about that time, the Debtors conducted a voluntary safety recall to check and correct a potential misalignment of internal hose clamps within the battery packs. In March 2012, A123 announced a voluntary service campaign to replace all Karma battery packs because of a faulty manufacturing process at A123’s production facility in Livonia, Michigan, that affected the expected performance and durability of the battery packs—the problem that caused a Karma sedan to shutdown during testing by Consumer Reports.
“A123 did not complete the service campaign and later suspended its production of Karma battery packs.15 As a result, the Debtors were left with approximately a $48.7 million warranty claim against A123’s bankruptcy estate and no supply of high-voltage battery packs to continue Karma production.16 Facing these challenges, the Debtors have not restarted Karma production following a previously scheduled seasonal shutdown that began in July 2012.
“The Debtors suffered an additional loss on October 29, 2012, when Hurricane Sandy and its related windstorms, storm surges, and floods, destroyed approximately 338 Karma sedans located at the port in Newark, New Jersey. These vehicles represented substantially all of Fisker’s then-available Karma inventory in the United States. The Debtors’ insurance carriers denied coverage for the loss. After filing suit, the Debtors settled their coverage claims for an amount far less than the approximately $30 million wholesale value of the destroyed vehicles in order to avoid the risk and cost of protracted litigation with their insurance carriers.
“The Debtors intend to file their proposed chapter 11 plan promptly after the commencement of these cases. Generally, the Debtors seek to utilize proceeds from the Purchase Agreement, the Purchaser’s additional undertakings to fund creditor recoveries, and their remaining assets to administer these chapter 11 estates, fund creditor recoveries, and bring these chapter 11 cases to a prompt conclusion. The Debtors further anticipate seeking approval of their related disclosure statement and plan confirmation in the near term.