A123 Systems’ Unsecured Creditors Object to Sale

A123 Systems Inc., the bankrupt maker of electric-car batteries that received a $249.1 million federal grant, faces objections from unsecured creditors to a planned sale of company assets.

A123, based in Waltham, Massachusetts, filed for bankruptcy protection last month with plans to sell its automotive-business assets to Milwaukee-based Johnson Controls Inc. for about $125 million. Last week, a unit of China’s Wanxiang Group Corp. said it wants to be the lead bidder for all of A123’s assets in a court-supervised auction.

The official committee of unsecured creditors “is currently in constructive discussions with all parties,” according to papers filed yesterday in U.S. Bankruptcy Court in Wilmington, Delaware. Existing plans “will chill bidding and result in an unfair sale process,” the panel said.

Sticking points cited by the committee include a $7.75 million breakup fee and expense reimbursement if the sale to Johnson Controls falls through, overbroad control by A123 of bidding procedures and “an accelerated sale process” ending only 24 days after the committee was formed.

“A robust marketing and bid solicitation process that does not favor one particular bidder is necessary to achieve the highest and best value” for creditors, the panel said.

Regulatory Approval

A123 asked the court to deny Wanxiang America Corp.’s request to delay the sale process by 30 days, saying Wanxiang “may not be able to secure the governmental regulatory approvals it is seeking even under this extended timeline.”

Wanxiang is pursuing approval from the Committee on Foreign Investment in the United States “to protect itself from the risk that the sale could subsequently be unwound,” A123 lawyers said in court papers.

“Because of this potentially lengthy process, there is no guarantee that Wanxiang would obtain CFIUS approval even if the sale process were adjusted and extended,” A123 said.

A123 is seeking approval of a $50 million loan from Wanxiang, replacing Johnson Controls as the lender for its Chapter 11 case. Johnson Controls said it withdrew as the lender to avoid a fight over the financing.

Taxpayer Dollars

U.S. senators John Thune and Chuck Grassley expressed concerns about A123’s financing deal with Wanxiang in a letter to U.S. Treasury Secretary Timothy Geithner. The Republicans pressed Geithner, who has oversight of the CFIUS, “to protect U.S. military and taxpayer interests while reviewing the potential transaction,” according to a Nov. 1 statement.

“A123 has received millions of taxpayer dollars to develop technology and intellectual property that should not simply be shipped to China,” Thune said in the statement.

Also objecting to parts of the sale process were Fisker Automotive Inc., the U.S. Trustee’s office and patent holders.

In its Chapter 11 bankruptcy petition, A123 listed assets of $459.8 million and debt of $376 million as of Aug. 31.

The case is In re A123 Systems Inc., 12-12859, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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