Fisker May File For Bankruptcy Ahead of Loan Deadline
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UPDATED: Apr 15, 2013
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Luxury car company Fisker Automotive may file for bankruptcy, according to several sources.
Earlier this week The Wall Street Journal reported that the company has been working with restructuring lawyers at Kirkland & Ellis LLP to finalize their bankruptcy petition. Sources familiar with the matter said the company is also looking for buyers and investors, but has yet to finalize a deal.
The news comes less than two weeks before the brand’s impending loan repayment to the Department of Energy.
In 2010, Fisker was awarded a $529 million loan from the DOE, under the Advanced Technology Vehicles Manufacturing loan program. Fisker received close to $200 million in funds and is expected to pay back $10 million on April 22. If Fisker does apply for bankruptcy, the Department of Energy would be the company’s senior creditor.
The DOE is pushing for a Chapter 11 filing. In that scenario, Fisker’s bankruptcy would result in a major sale of the company’s assets, according to Barry Lefkowitz, Managing Director of BBK, a business advisory firm.
“It’s not a reorganization under chapter 11, it’s a liquidation under chapter 11,” Lefkowitz said.
According to Lefkowitz, Fisker’s first move under bankruptcy would be to sell off its assets and distribute the funds evenly amongst their creditors based on the amount they are owed. The list of Fisker creditors is steadily growing – the company has been sued three times this month.
Fisker faces lawsuits for failing to pay $535,000 in fees to their website and mobile design company and rent for the month of April. Last week, Fisker laid off 75 percent of its work force. Under the WARN Act, the company is legally obligated to give employees 60 days notice before a lay off. The former employees have already filed suit, though Lefkowitz says this won’t impact the company’s already troubled finances.
“You file a WARN notice if you’re not filing bankruptcy,” he said. Under bankruptcy the lawsuit would become a low priority claim, added to an already long list of debts.
Fisker, which produces plug-in hybrid cars such as the $100,000 Fisker Karma luxury sedan, has had a difficult year financially. On October 29 of last year, a shipment of 300 brand new Fisker Karmas was flooded and destroyed by Hurricane Sandy, costing the company approximately $30 million dollars. A month later the company’s battery supplier declared bankruptcy, leading to a production suspension of the Karma.
The company planned on using the funds from the DOE loan to complete the Fisker Nina model and reopen a General Motors factory in Delaware, which would have created over 2,500 jobs, based on estimates by the DOE.