A123 Systems Inc. (AONE:US), the electric car battery maker that received a $249.1 million federal grant, filed for bankruptcy protection and said it would sell its automotive business assets to Johnson Controls Inc. (JCI:US)
The filing may fuel a 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. (TSLA:US) have drawn scrutiny from congressional Republicans following the September 2011 bankruptcy filing of solar-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,” A123 said in a press release. Johnson Controls 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 operations, according to the release. A deal to sell a majority stake to a Chinese company fell through, A123 said.
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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’s largest shareholder (AONE:US) is Heights Capital Management Inc. of San Francisco, with 12.5 million shares, or a 7.3 percent stake, according to data compiled by Bloomberg. IHI Corp., based in Tokyo, has 8.45 million shares, or about 5 percent, and General Electric Co., based in Fairfield, Connecticut, holds 7.37 million shares, or about 4.3 percent.
The 30 largest consolidated creditors without collateral backing their claims are owed a total of more than $161 million, according to court papers. U.S. Bank NA, as trustee, is listed as the largest unsecured creditor with a claim of $142.8 million, according to court papers. Hudson Bay Capital Management LP has a claim of $2.8 million, Jabil Circuit Inc. has a claim of $1.7 million and Hydro Quebec has a claim of $1.5 million.
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A123 fell 18 cents, or 74 percent, to 6 cents a share in over-the-counter trading as of 2:38 p.m.
A123, which received a $249.1 million federal grant in 2009 to build U.S. factory capacity, 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.
“We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion,” David Vieau, A123’s chief executive officer, said today in the company’s statement. Wanxiang had planned 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.
Johnson Controls plans to acquire A123’s automotive business assets, including its facilities in Livonia and Romulus, Michigan. The Milwaukee-based company also will obtain A123’s cathode powder plant in China and its equity interest in Shanghai Advanced Traction Battery Systems Co., A123’s joint venture with Shanghai Automotive Industry Corp.
“Our interest in A123 Systems is consistent with our long- term growth strategies and overall commitment to the development of the advanced battery industry,” Alex Molinaroli, president of Johnson Controls Power Solutions, said in today’s statement. “We believe that A123’s automotive capabilities are a good complement to our existing portfolio.”
A123 has used $132 million of the $249.1 million grant awarded by the U.S. in 2009 toward building the two Michigan factories, the Energy Department said today in a posting on its website. A123 was required to spend up to one dollar of its funds for every incentive dollar received from the government, according to regulatory filings. The company also received a $6 million grant from the George W. Bush administration in 2007.
A123 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. Units outside the U.S. didn’t file for bankruptcy.
President Barack Obama called A123’s CEO Vieau and then- Michigan Governor Jennifer Granholm during a September 2010 event celebrating the opening of the plant in Livonia 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 Dec. 31, 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 had fallen 85 percent this year to 24 cents as of yesterday’s close in New York.
The case is In re A123 Systems Inc., 12-49658, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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