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A123 Systems receives interim court approval of $50M DIP financing from Wanxiang; responds to objections from Wanxiang, Fisker and others on asset sales process
6 November 2012
Li-ion maker A123 Systems, Inc. announced that the United States Bankruptcy Court for the District of Delaware (the "Court") has granted A123 interim approval to use $50 million of Debtor-in-Possession (DIP) financing, which is being provided by Wanxiang Group Corporation (Wanxiang). (Earlier post.)
The financing supplements the pre-petition $22.5 million of liquidity and letter of credit support that Wanxiang provided to A123, which will remain in place.
On 16 October, A123 Systems agreed to sell its automotive business assets to Johnson Controls, Inc. in a transaction valued at $125 million. The agreement also included provisions through which Johnson Controls intends to license back to A123 certain technology for its grid, commercial and government businesses. A123 and all of its US subsidiaries also filed for reorganization under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the District of Delaware.
On 27 October, Johnson Controls announced it had chosen not to be the debtor-in-possession (DIP) lender during A123’s bankruptcy process—as had been the original plan—to avoid potential delays posed by threatened legal actions from Wanxiang, which had earlier entered into a major financing deal with A123. (Earlier post, earlier post.) Wanxiang has indicated that it wants to be the lead bidder for A123’s assets.
A hearing on bidding procedures with regard to the previously announced asset purchase agreement with Johnson Controls, Inc. that was initiated on 5 November has been adjourned until a hearing scheduled for 8 November 2012. Johnson Controls consented to adjourn the hearing on this motion so A123 and Johnson Controls could continue discussions with the recently formed Official Committee of Unsecured Creditors and attempt to resolve consensually any potential issues regarding the bidding procedures.
We are pleased that the Court has granted A123 interim approval for the DIP financing agreement. The DIP financing will allow A123 to operate our businesses and provides additional operational and financial stability as we proceed with the transaction process. It is important to note that being the DIP provider does not give Wanxiang or any other party control over or leverage in A123’s court-supervised sale process. As we move through the transaction process, we will continue to act in the best interests of A123, its employees and its other stakeholders.—Dave Vieau, CEO of A123
A123 responds. Over the weekend, A123 filed a response to various objections that have been raised by Wanxiang, Fisker and others pertaining to the Chapter 11 proceedings, particularly with regard to the proposed bid procedures and process.
In a post on A123’s corporate blog, Dr. Andy Chu, A123’s Vice President, Marketing and Communications summarized the response.
Overall, Chu wrote, A123’s overall objective is to create and maintain a fair, inclusive and transparent sale process that will promote competitive bidding to maximize the value of A123’s assets to the benefit our stakeholders. He suggested that what the company calls its “stalking horse”—i.e., a test of the market—asset purchase agreement with Johnson Controls and the proposed bid, auction and sale process (including the timeline) help support this objective.
The three primary objections raised are:
The proposed timeline for the bid, auction and sale process is “unreasonably short”.
The protections in the Johnson Controls stalking horse bid are unfavorable to the value of the A123 estate (for example, the break-up fee included in the asset purchase agreement is deemed as unreasonably high).
A123 has not clearly defined which of its assets are available for acquisition through the auction process.
In order, A123 counters that the the proposed sale process (including the timeline) is reasonable and in the best interest of A123’s estate. Extending the timeline by a substantial amount of time would likely damage the value of A123’s estate, the company said.
In response to the second objection, A123 carefully considered the bid protections and decided that they are fair and reasonable under the circumstances. The asset purchase agreement with Johnson Controls constitutes the best offer received and is the only bid that does not contain what the company deems to be “materially unsatisfied” closing conditions—providing confidence that the sale of the automotive business to Johnson Controls could be completed within the necessary timeline, Chu wrote.
Third, A123 believes it has adequately identified the company’s assets that it intends to sell at the forthcoming auction: any and all of its assets, including the automotive business as well as the grid, commercial, government and other businesses, are subject to sale at the auction.
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