Fisker is just days into its Chapter 11 bankruptcy, and the battle for its assets has already charged, with a lawyer claiming the startup is liquidating assets “outside the court’s oversight.”
At issue is the relationship between Fisker and its largest secured lender, Heights Capital Management, a subsidiary of financial services firm 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 woes were looming behind the scenes.
This financing was not initially 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 breach, Fisker agreed to give Heights first priority in all current and its future assets. giving Heights significant leverage. The Heights not only won first place to determine what happens to the assets in the Chapter 11 process, but it also gave them the opportunity to use a preferred restructuring officer to oversee the company’s slow descent into bankruptcy.
Alex Lees, a Milbank attorney representing a group of unsecured creditors owed more than $600 million, said at the first hearing Friday in Delaware Bankruptcy Court that it took “too long” to get to this point. . He said Fisker’s late regulatory filing was a “small technical default” that somehow led to the startup “basically hand[ing] the whole business at the Heights.’
“We think this was a terrific deal [Fisker] and his creditors,” Lees told the hearing. “The right thing to do would be to file for bankruptcy months ago.” Meanwhile, he said, Fisker has “liquidated outside of court supervision” in favor of Heights, which he said amounts to “suspicious activity.” Fisker went through the period before filing for bankruptcy lowering prices and vehicle sales.
Scott Greissman, an attorney representing Heights’ investment arm, said Lees’ comments were “completely inappropriate, completely unsupported” and derided them as “designed as sound bites” meant to be picked up by the media.
“There could be a lot of disappointed creditors” in this case, Greissman said, “none more than the Heights.” He said Heights provided “a tremendous amount of credit” to Fisker. He later added that even if Fisker were to sell its entire remaining inventory — about 4,300 Ocean SUVs — such a sale would “perhaps pay off a fraction of Heights’ guaranteed debt,” which currently stands at more than $180 million. .
Lawyers told the court on Friday that they have an agreement in principle to sell those Ocean SUVs to an unnamed vehicle leasing company. However, it is not immediately clear what other assets Fisker could sell in order to provide returns for other creditors. The company has claimed to have between $500 million and $1 billion in assets, but the filings so far only detail manufacturing equipment, including 180 assembly robots, an entire underbody line, a paint shop and other specialized tools.
Lees was not alone in his concern about how Fisker completed the bankruptcy filing. “I don’t know why it took so long,” Linda Richenderfer, an attorney for the U.S. Commissioner’s Office, said during the hearing. He also noted that he was still reviewing new files late Thursday and in the hours leading up to the hearing.
He also expressed “great concern” that the case could turn into straight Chapter 7 liquidation after Ocean’s stock is sold, leaving other creditors scrambling for scrap.
Greissman said at one point that he agreed that Fisker “probably took longer” than it needed to file for bankruptcy and that some of those disputes could have been “resolved more easily” if the case had started sooner. He even said he agreed with Richenderfer that “even with a fleet sale, Chapter 11 may not be viable.”
The parties will meet again at the next hearing on June 27.
Before dismissing everyone, Judge Thomas Horan thanked all parties involved for coming to the hearing “very clean” despite the rush of depositions this week. He singled out the US trustee’s office for working under “really difficult circumstances” to “get over their heads” the case with “minimal controversy, in the scheme of things.”
“I imagine there are some people who want to get some sleep now,” he said with a smile as he finished the hearing.
