Fisker is just days into its Chapter 11 bankruptcy and the battle for its assets has already been litigated, with an attorney claiming the startup has liquidated assets “outside the court's supervision.”
At issue is the relationship between Fisker and its largest 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 distress was looming behind the scenes.
That financing was not originally backed by any assets. That changed after Fisker breached one of the covenants when it failed to file its third-quarter financial statements on time by the end of 2023. In exchange for waiving that violation, Fisker agreed to give Heights first priority for all of its current and future assets. giving Heights significant influence. Heights not only gained the pole position to determine what happens to the assets in the Chapter 11 proceedings, but also gave them the opportunity to bring in a favored restructuring executive to oversee the company's slow descent into a bankruptcy.
Alex Lees, a lawyer for the Milbank firm representing a group of unsecured creditors owed more than $600 million, said Friday during the first hearing of the proceedings in the Delaware Bankruptcy Court that it took “too long” to get to this point. come. He said Fisker's late filing with regulators was a “minor technical deficiency” that somehow led to the company's launch “essentially a manual error.”[ing] the whole thing to Heights.
“We think this was a terrible deal [Fisker] and its creditors,” Lees said during the hearing. “The right thing would have been to file for bankruptcy months ago.” In the meantime, he said, Fisker has been conducting liquidations “outside the court's supervision” on behalf of Heights, which he said amounts to “suspicious activity.” Fisker spent the run-up to the bankruptcy filing lower prices and sales of vehicles.
Scott Greissman, an attorney representing Heights' investment arm, said Lees' comments were “completely inappropriate and completely unsupported,” deriding them as “designed as sound bites” intended to be picked up by the media.
“There could be many disappointed creditors in this case,” Greissman said, “none more so than Heights.” He said Heights extended “an enormous amount of credit” to Fisker. He later added that even if Fisker can sell off its entire 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 car leasing company. But it's not immediately clear what other assets Fisker might sell to provide returns to other creditors. The company claims to have between $500 million and $1 billion in assets, but the files so far only include detailed production equipment, including 180 assembly robots, a full bodywork line, a paint shop and other specialized tools.
Lees wasn't the only one concerned about how Fisker ultimately filed for bankruptcy. “I don't know why it took so long,” Linda Richenderfer, an attorney with the U.S. Trustee's Office, said at the hearing. She also noted that she was still reviewing new files late Thursday and in the hours before the hearing.
She also expressed “major concern” that the case could turn into an outright Chapter 7 liquidation after the sale of the Ocean inventory, leaving other creditors fighting for scraps.
Greissman said at one point that he agreed that Fisker “probably needed more time” than necessary to file for bankruptcy protection, and that some of these arguments could have been “more easily resolved” if the case had started earlier. In fact, he said 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 coming to the hearing in a “reasonable manner” despite the rush of filings this week. He specifically called out the US Trustee's office for working under “really difficult circumstances” to understand the case “with minimal controversy overall.”
“I imagine there are a few people who want to catch up on some sleep right now,” he said with a smile as he ended the hearing.
