Just days after Fisker filed for Chapter 11 bankruptcy, the fight over its assets has already led to charges. One lawyer argued that the startup liquidated its assets “outside of court oversight.”
At issue is the relationship between Fisker and its largest mortgage lender, Heights Capital Management, an affiliate of financial services company Susquehanna International Group. Heights lent Fisker more than $500 million in 2023 (with an option to convert that debt into stock in the startup) at a time when the company's financial troubles were looming behind the scenes.
The funds were not originally secured by any assets. That changed after Fisker breached one of its covenants by failing to file its third quarter financial statements on time at the end of 2023. Fisker agreed to give Heights first priority over all of its current and future assets in exchange for a waiver of that violation. Provides significant influence in the Heights. Not only did Heights have a central position in determining what happens to its assets in a Chapter 11 proceeding, it also gave it the opportunity to appoint a preferred restructuring officer to oversee the company's path to bankruptcy.
It has taken “too long” to get to this point, Alex Lees, an attorney for Milbank, which represents unsecured creditors owed more than $600 million, said during the first hearing Friday in Delaware Bankruptcy Court. He said he was caught. He said Fisker's delayed regulatory filing was a “minor technical default” that somehow caused the startup to “basically hand over its entire business to Heights.”
“We believe this is a terrible deal for (Fisker) and its creditors,” Lees said at the hearing. “The right thing to do would have been to file for bankruptcy months ago.” In the meantime, he said, Fisker has been “liquidating outside of court supervision” for the benefit of Heights, calling it “suspicious activity.” Fisker spent time cutting prices and selling off vehicles ahead of filing for bankruptcy.
Scott Greissman, a lawyer representing Heights' investment arm, called Lees' comments “completely inappropriate and completely unfounded” and derided them as “designed as a snippet” for media coverage.
In this case, “there could be a lot of disappointed creditors,” Greissman said, “none more so than Heights.” He said Heights gave Fisker “an enormous amount of credit.” He added that even if Fisker were later able to sell its entire remaining inventory (about 4,300 Ocean SUVs), those sales “could pay off a portion of Heights' secured debt,” which currently stands at more than $180 million.
Lawyers told the court Friday that there was an agreement in principle to sell the Ocean SUV to an unnamed vehicle leasing company. But it was not immediately clear what other assets Fisker might sell to provide proceeds to other creditors. The company has claimed it has between $500 million and $1 billion in assets, but filings so far only include detailed manufacturing equipment, including 180 assembly robots, a full line of underbody vehicles, a paint shop and other specialized tools.
The Lees weren't alone in their concerns about how Fisker concluded its bankruptcy filing. “I don’t know why it took this long,” Linda Richenderfer, a U.S. Trustee attorney, said during the hearing. She also noted that she was continuing to review new documents late Thursday and in the hours leading up to the hearing.
She also expressed “big concerns” that the case could move straight into Chapter 7 liquidation following the sale of Ocean inventory, leaving other creditors fighting for scrap.
Greissman said he agreed at some point that Fisker “probably took more time” than necessary to file for bankruptcy protection and that some of those fights could have been “more easily resolved” if the case had been initiated sooner. He said he agrees with Richenderfer that “even with vehicle sales, Chapter 11 may not be sustainable.”
The two sides are scheduled to meet again at their next hearing on June 27.
Before dismissing everyone, Judge Thomas Horan thanked all parties involved for attending the hearing “very cleanly” despite the flood of filings this week. He specifically pointed out that the U.S. Trustee's Office was working under “really difficult circumstances” to “resolve” the case with “the least amount of controversy in the scheme of things.”
“I think some of you might want to get some sleep right now,” he said with a laugh as he concluded the hearing.
