A123 Defaults On Loan, Seeks Bankruptcy Protection

5 years ago by Jay Cole 16

Cutaway Of A 2014 Spark EV

Battery maker A123 last night filed an SEC report stating that it expects to be in default under material debt agreements today.   And as such, today A123 and its U.S. subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware.

 

A123 Systems Employees Perform Quality Check On A Lithium Ion Battery Pack

The exact source of the problem was that A123 did not make an interest payment due yesterday on $143.8 million of notes that expire in 2016, or make a payment (also due yesterday) on $2.76 million in outstanding 6 % notes.

“The company may not have sufficient cash to fund operations and may need to seek the protections provided under the U.S. Bankruptcy Code,” A123 said last night. “No assurance can be given that the company will be able to avoid restructuring, reorganization, or a bankruptcy filing.”

Previously, in a deal worth upwards of $465 million,  A123 had announced a financing deal with the Wanxiang Group Corp., which is China’s largest auto-parts maker, for a majority ownership stake in the company.  However, in yesterday’s 8-K filing, A123 said it was considering strategic alternatives to address its liquidity problems, and today, A123 announced the Wanxiang deal has fallen through.

“We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion.  Since disclosing the Wanxiang agreement, we have simultaneously been evaluating contingencies, and we are pleased that Johnson Controls recognizes the inherent value of our automotive technology and automotive business assets”  – David Vieau, Chief Executive Officer of A123

It looks as if while A123 will go on in some (smaller) form, its current shareholders will not.  A123 is the current supplier of batteries for the Fisker Karma, as well as the future supplier for the Spark EV.

Update: A123 has signed a deal (subject to bankruptcy) worth $125 million to Johnson Controls, ($73 million of which to fund the company’s continued operations in the meantime) for its automotive technology, products and customer contracts, as well as ownership in its facilities in Livonia and Romulus, Mich.

Also included in the agreement is A123’s equity interest in Shanghai Advanced Traction Battery Systems Co.  A123 says it continues to explore “strategic alternatives” for its grid, commercial, government and other operations.

Statement from A123:

“On October 16, 2012, A123 Systems, Inc. announced that it has entered into an asset purchase agreement with Johnson Controls, Inc., which plans to acquire A123’s automotive business assets, including all of its automotive technology, products and customer contracts, its facilities in Livonia and Romulus, Mich., its cathode powder manufacturing facilities in China, and A123’s equity interest in Shanghai Advanced Traction Battery Systems Co., Alpha’s joint venture with Shanghai Automotive. The asset purchase agreement also includes provisions through which Johnson Controls intends to license back to A123 certain technology for its grid, commercial and government businesses. A123 also continues to engage in active discussions regarding strategic alternatives for its grid, commercial, government and other operations, and has received several indications of interest for these businesses.


To facilitate the transaction process, A123 and all of its U.S. subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. A123’s non-U.S. subsidiaries were not included in the filing. This action is expected to allow A123 to provide for an orderly sale of its automotive business assets and all other assets and business units under Section 363 of the Bankruptcy Code and help maximize the value of its assets for its stakeholders.

In conjunction with the proposed asset purchase agreement, A123 has received a commitment from Johnson Controls for $72.5 million in debtor in possession financing to support A123’s continued operations during the pendency of the sale process.”

All of this makes for an interesting talking point for tonight’s Presidential debate.  At time of press, A123 shares are lower by about 75% at 6 cents (real time quote here)

A123’s SEC 8-K filing here
(The author of this piece (sadly) has a call option position in A123)

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16 responses to "A123 Defaults On Loan, Seeks Bankruptcy Protection"

  1. kdawg says:

    So stockholders get $0, and Johnson Controls gets to buy up what’s left?

  2. ClarksonCote says:

    Nothing like a 70% drop in the stock price. At least you only had a call option, I was holding actual shares, haha.

    1. Jay Cole says:

      I did own shares for awhile. I got a little skiddish on it after cost-averaging my position, and sold out when it did a little bounce back over a dollar.

      Wish I would have been more skiddish and just left entirely, heeh. However, that is the risk you take when you invest in companies like this. 3 out of 4 go bankrupt, you just hope the one that makes it…. makes it in a big way, (=

      1. ClarksonCote says:

        I should have sold out when it bounced over $1, but had a more optimistic view about the company in general. The DOE withheld loans from them right? Sadly, I feel like the company would be in a much better position had they not done that.

        The DOE loans were supposed to help provide funding to ensure capital was available in an otherwise volatile market, so these companies could focus on the technology and not financing.

        Withholding loans does just the opposite of what those loans were supposed to accomplish.

    2. brg2290 says:

      Yup, me too. So the question now is – sell at a 75% loss or ride it out. Any advice?

      1. ClarksonCote says:

        I sold at a loss, but that’s just me. Depends on your tax situation I suppose, and also whether or not you feel that they will somehow rebound. But usually, bankruptcy protection usually means that the stock gets wiped out.

      2. Roy_H says:

        No such thing as riding it out. The value will go to zero. However there always seems to be some who think otherwise and will see stock at a few pennies as a bargain and purchase a bunch. So there could be some sharp swings before it ultimately disappears.

  3. Schmeltz says:

    This is sad for them. I would have liked to see them make it, but this certainly doesn’t bode well.

    Now here’s where I need some help understanding what happens next. Presumably A123 will file for bankruptcy protection, if they haven’t already. Is that first declaration considered Chapter 11 – Reorganizing? Or might they immediately go into Chapter 7 – Liquidation? Would they be likely forced to liquidate if they indeed have orders to fill such as obligations to Fisker, GM, etc.? And how does the Chinese investment in them play out? It appears to be a complicated mess that has only begun to unravel.

    1. Jay Cole says:

      Story is moving fast…updating as it goes.

      Johnson controls taking the automotive business, looks like Chinese interests may end up with grid/other systems after a Chapter 11 rinse.

      1. chargefan says:

        “We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion. Since disclosing the Wanxiang agreement, we have simultaneously been evaluating contingencies, and we are pleased that Johnson Controls recognizes the inherent value of our automotive technology and automotive business assets.”
        http://green.autoblog.com/2012/10/16/a123-no-assurance-we-wont-go-bankrupt/

        1. Jay Cole says:

          …its the story that keeps expanding, lol. Thanks! Updated (4th time) with that quote from A123’s CEO.

  4. Open-Mind says:

    I think it would have been better to apply that $143 million toward $7500 incentive on electric cars for an extra 19,000 consumers. IMHO, free government cash to suppliers mostly enables corruption and facilitates bad business decisions.

  5. James says:

    I’m glad to see at least something goes back to the home team. Johnson Controls could
    be a sneaker stock to buy into at this point, assuming this all pans out in the end as
    A123 is suggesting it might. What a boon to pick up this technology in a fire sale!

    ( no Boon Pickens jokes here, pls. 🙂 )

    Sad for all the investors, that’s for sure, but looking at the cup half full, maybe not
    as horrible as it could be. China owning A123’s latest proprietary battery chemistry
    was indeed troubling when you thing about it, if…and I say, IF it is truly even near as
    “revolutionary” as they claim.

  6. James says:

    Debate night timing is frighteningly awful for EV endorsers. Fox News this morning
    .
    I’ll watch the debate tonight expecting this as big fodder for Romney. It’s like expecting a
    train wreck you know you cannot avoid. Hopefully he won’t bunch Tesla into his rant against
    green energy spending…but he most likely will – it’s his current sound bite, ” Failures like Solyndra, Fisker and Tesla….”

    wife is addicted to Fox “News”….the anchor said in regards to this breaking story:
    “EV sales are horrible, the Chevy Volt – which only proves NOBODY WANTS THESE CARS”
    Please email Fox News and tell them the Volt outsold any other plug-in, and had record sales
    last month, and that I am one of many WHO WANT THESE CARS!

    1. Bonaire says:

      Debate went well – they didn’nt actually fight physically, but I was hoping for something to happen, maybe a little shoving 🙂

      No real mention of Green energy other than a sentence or two.

    2. Open-Mind says:

      You didn’t need to worry about Romney dissing green energy last night. If he had, President Obama’s defensive tackle (Candy Crowley) would have wrested Romney to the floor. 😉