Dawn McCarty and Craig Trudell, Bloomberg
October 16, 2012 | 47 Comments
A123 Systems Inc., the electric car battery maker that received a $249 million federal grant, filed for bankruptcy protection after failing to make a debt payment that was due yesterday.
The filing may fuel further political debate over government financing of alternative-energy and transportation businesses. Federal grants and loans to companies including A123, Fisker Automotive Inc. and Tesla Motors Inc. have drawn scrutiny from congressional Republicans following the September 2011 bankruptcy filing ofsolar-panel maker Solyndra LLC two years after it received a $535 million loan guarantee from the U.S. Energy Department.
“This action is expected to allow the company to provide for an orderly sale of the automotive business assets and all other assets and business units,” A123 said in a press release. Johnson Controls Inc. plans to acquire A123’s automotive business assets in a deal valued at $125 million and will provide financing of $72.5 million to support A123’s continued operations, according to the release.
The company listed assets of $459.8 million and debt of $376 million as of Aug. 31 in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware.
The Waltham, Massachusetts-based company said yesterday it expected to fail to make an interest payment due yesterday on $143.8 million of notes expiring in 2016.
A123 fell as much as 17 cents, or 73 percent, to 6 cents a share in over-the-counter trading as of 10:48 a.m.
A123, which received a $249.1 million federal grant in 2009 to build a U.S. factory, needed a financial lifeline after struggling with costs from a recall of batteries supplied to Fisker, the plug-in hybrid luxury carmaker. A123 announced in August that it was working on a deal with Wanxiang Group Corp., China’s largest auto-parts maker, for financing in exchange for a majority ownership stake.
Wanxiang plans to invest as much as $465 million in A123, giving the Hangzhou, China-based company a stake of as much as 80 percent, A123 said in an Aug. 16 statement. In yesterday’s filing, A123 said it was considering strategic alternatives including “one or more potential transactions” to address its liquidity problems. There is “no assurance” that A123 will be able to find a way to continue to operate its business as a going concern, the company said.
The company and its debtor and non-debtor affiliates, collectively, have about 1,763 active employees, located in 10 facilities across the U.S., China and Germany, according to court papers. Its businesses consist of three primary business segments: transportation; grid energy storage; and commercial.
A123 Securities Corp., a non-operating company that holds a large portion of the company’s cash, and Grid Storage Holdings LLC, a shell entity formed “for the sole purpose of facilitating certain contemplated grid projects which ultimately were not completed,” also sought protection, according to court papers.
President Barack Obama called A123 Chief Executive Officer David Vieau and then-Michigan Governor Jennifer Granholm during a September 2010 event celebrating the opening of the plant in Livonia, Michigan, that the company received the U.S. grant to help build.
“This is about the birth of an entire new industry in America -- an industry that’s going to be central to the next generation of cars,” Obama said in the phone call, according to a transcript provided by the White House. “When folks lift up their hoods on the cars of the future, I want them to see engines and batteries that are stamped: Made in America.”
Electric-vehicle sales since 2011 totaled fewer than 50,000 through September, just 5 percent of Obama’s target to have 1 million such vehicles on U.S. roads by 2015.
The debtors’ two largest customers are Fisker and AES Energy Storage LLC and its affiliates, which accounted for about 26 percent and 24 percent of their total revenue during the year ended December 31, 2011, respectively, court papers show.
Republican presidential candidate Mitt Romney said last month that Obama has picked “losers” for alternative-energy loans and grants. His running mate, Paul Ryan, has called for all green-energy subsidies to be eliminated.
A123 has posted at least 14 straight quarterly losses. Its shares have fallen 85 percent this year to 24 cents at yesterday’s close in New York and traded at 16 cents at 8:29 a.m. before the start of regular trading.
The case is In re A123 Systems Inc., 12-49658, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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