In a Form 8K filed with the US Securities and Exchange Commission (SEC) on 15 October, Li-ion battery maker A123 Systems said it will be in default under several of its debt agreements as of today (16 October). First, the company does not expect to pay its October interest payment of $2,695,312.50 to Wanxiang America Corporation on the 3.75% convertible subordinated notes due 2016 in the aggregate principal amounts of $143,750,000. (Earlier post.)
Similarly, A123 does not intend to pay on time a 6% principal and interest (P&I) payment due under a set of 6% Notes, $2,759,118.69 in aggregate principal amount of which are currently outstanding. Under the terms of the original agreement, non-payment would result in an event of default under the 6% Notes and would permit the holders of the 6% Notes to require them to be redeemed.
The failure to pay the October Interest Payment and the 6% P&I Payment would also result in events of default under the loan agreement with Wanxiang; however, the consequences of these events of default are temporarily waived under two consent and waiver agreements A123 signed with Wanxiang on 12 October.
Under the first waiver agreement, Wanxiang waived the event of default (as defined in the loan agreement) result from the failure to make the interest payment on the 3.75% convertible subordinated notes until the end of a 30-day grace period.
Under the second agreement, Wanxiang waived the event of default result from the failure to make P&I payment on the 6% notes, any other default under the 6% Notes, or any failure by A123 to redeem the 6% notes for a 30-day period. If A123 fails to make all of the P&I payments on the notes due through November 15, 2012 or otherwise fails to cure all defaults under the 6% Notes on or prior to 15 November, an event of default under the Loan Agreement would occur immediately.
The Company [A23 Systems] is considering a broad set of strategic alternatives to address its liquidity constraints including one or more potential transactions and is preparing for all contingencies as part of that process. However, there is no assurance that the Company will be able to pursue a strategic alternative that will allow it to continue to operate its business as a going concern. The Company may not have sufficient cash to fund operations and may need to seek the protections provided under theUS Bankruptcy Code to, among other things, obtain access to new financing and facilitate one or more of the transactions it is contemplating. No assurance can be given that the Company will be able to avoid restructuring, reorganization, or a bankruptcy filing.—15 October 8K filing
In an 8K filing in May, A123 said that a number of circumstances had raised “substantial doubt on [its] ability to continue as a going concern.” (Earlier post.)