Fisker Automotive files for Chapter 11

January 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Hybrid car manufacturer Fisker Automotive Inc filed for Chapter 11 bankruptcy protection in late November after lengthy efforts by investors to salvage the company proved to be unsuccessful.

The company’s bankruptcy filing came after Anaheim, California based Fisker agreed to sell itself to an investor group, Hybrid Technology LLC. In order to help facilitate the sale process and provide for orderly distributions to creditors, Fisker Automotive voluntarily filed for Chapter 11 bankruptcy protection. “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 maximising Fisker Automotive’s value for the benefit of all stakeholders,” Marc Beilinson, Fisker’s chief restructuring officer, said in a statement. “We believe that the Fisker Automotive technology and product development capability will remain a guiding force in the evolution of the automotive industry under Hybrid’s leadership.”

Under the terms of the deal, Hybrid Technology has agreed to commit up to approximately $8m in debtor-in-possession financing to fund the sale and the ongoing Chapter 11 process. The company filed for bankruptcy protection at the US Bankruptcy Court in Wilmington, Delaware on 22 November.

Despite the promising nature of its hybrid vehicles, Fisker, founded in Southern California in 2007, encountered financial difficulties and poor sales for almost the entirety of its existence. In 2009 the company won a $529m loan as part of the Obama administration’s effort to boost advanced vehicle development in the United States. However, as a result of Fisker’s failure to hit several of the vehicle development targets set out under the loan, the company was only able to draw $192m of funding before the department froze future payments.

Although the company did attract attention from a number of high profile actors and entertainment personalities, Fisker struggled. Effectively the group ceased operations in early 2013, when Fisker defaulted on its loan repayments. The company was forced to hire a bankruptcy and restructuring firm, however Fisker ultimately did not file for bankruptcy protection as the company’s investors attempted to sell the business and its loan obligation at a reduced rate outside of a bankruptcy filing. As a result of the company’s financial woes, Fisker also announced in April that it was being forced to lay off 75 percent of its existing workforce.

Thanks to its various financial travails Fisker quickly became a symbol of the conflict between the Obama administration and a number of prominent Republicans who were extremely critical of the President’s taxpayer-funded investments in greener technology. A number of other companies received loans from the Department of Energy (DOE) via its Advanced Technology Vehicles Manufacturing program, including the Ford Motor Company, Nissan Motor Company, and Tesla Motors and Vehicle Production Group. Fisker’s financial woes left it unable to repay millions of dollars in outstanding bills to suppliers, the DOE and others. Subsequently the DOE put the loan up for auction in mid-October. Hybrid Technology acquired the loan which was originally worth $168m, for $25m. In total the DOE has recouped approximately $53m of its $192m investment in Fisker.

In a statement announcing the deal, Hybrid Technology noted that its purchase of the Fisker government loan marked the beginning of the process by which the company would eventually restart the production and sale of the Karma hybrid sports car and the development of other hybrid-electric vehicles. Hybrid Technology has also vowed to maintain some kind of presence in the US, which was a condition of the original loan to Fisker. Hybrid owns a plant in Delaware which was formerly owned by the General Motors Company. Under the terms of the loan, this facility was originally to be used for building a new line of plug-in hybrid vehicles. This plan was scrapped when Fisker encountered financial difficulties.

Richard Summerfield