Fisker is just days into its Chapter 11 bankruptcy, and the fight over its assets is already heated, with one attorney claiming the startup has been liquidating assets “outside the court's supervision.”
At stake is the relationship between Fisker and its largest secured lender, Heights Capital Management, an affiliate of financial services company Susquehanna International Group. Heights loaned Fisker more than $500 million in 2023 (with the option to convert that debt into equity in the startup) at a time when the company's financial difficulties were lurking behind the scenes.
This financing was not originally secured by any assets. That changed after Fisker breached one of the covenants when it failed to timely file its third-quarter financial statements at the end of 2023. In exchange for waiving that default, Fisker agreed to give Heights first priority on all of its current and future assets. . giving Heights considerable influence. Heights not only got the pole position to determine what happens to the assets in Chapter 11 proceedings, but it also gave them the opportunity to tap a preferred restructuring official to oversee the company's slow descent toward bankruptcy.
Alex Lees, an attorney with the Milbank firm who represents a group of unsecured creditors who are owed more than $600 million, said at the proceeding's first hearing Friday in Delaware Bankruptcy Court that it took “too much time” to get to this point. He said Fisker's late regulatory filing was a “minor technical noncompliance” that somehow led the startup to “basically hand over the entire business to Heights.”
“We believe this was a terrible deal for (Fisker) and his creditors,” Lees said at the hearing. “The right thing to do would have been to declare bankruptcy months ago.” Meanwhile, he said, Fisker has been “liquidating outside of court supervision” for the benefit of Heights in what he said amounts to “suspicious activity.” Fisker has passed the pre-bankruptcy period cutting prices and vehicle sales.
Scott Greissman, an attorney representing Heights' investment arm, said Lees' comments were “completely inappropriate, completely baseless” and derided them as “designed as sound bites” intended to be picked up by investors. media.
“There may be many disappointed creditors” in this case, Greissman said, “none more than Heights.” He said Heights gave “a tremendous amount of credit” to Fisker. He later added that even if Fisker could sell all of his remaining inventory (about 4,300 Ocean SUVs), such a sale “may pay off a fraction of Heights' secured debt,” which currently stands at more than $180 million. .
Lawyers told the court Friday that they have an agreement in principle to sell those Ocean SUVs to an unnamed vehicle leasing company. But it is not immediately clear what other assets Fisker could sell to provide returns to other creditors. The company has claimed to have between $500 million and $1 billion in assets, but filings so far only detail manufacturing equipment, including 180 assembly robots, a full line of bass guitars, a paint shop and other specialized tools. .
Lees was not alone in his concern about how Fisker ended up filing for bankruptcy. “I don't know why he took so long,” Linda Richenderfer, an attorney with the U.S. Trustee's Office, said during the hearing. She also noted that she was still reviewing new filings Thursday night and in the hours leading up to the hearing.
He also expressed “great concern” that the case could turn into a direct Chapter 7 liquidation following the sale of Ocean's inventory, leaving other creditors scrambling for leftovers.
Greissman said at one point that he agreed that Fisker “probably took more time” than necessary to file for bankruptcy protection, and that some of these disputes could have been “resolved more easily” if the case had started sooner. He even said that he agrees with Richenderfer that “even with a fleet sale, Chapter 11 may not be sustainable.”
The parties will meet again at the next hearing on June 27.
Before dismissing everyone, Judge Thomas Horan thanked all parties involved for getting to the hearing “pretty cleanly” despite the flurry of filings this week. In particular, he criticized the U.S. Trustee's office for working under “really difficult circumstances” to “understand” the case with “minimal controversy, in the scheme of things.”
“I imagine there are some people who now want to catch up on sleep,” he said with a smile as the hearing ended.
