As the failed electric vehicle (EV) startup Fisker goes through bankruptcy, one question that keeps coming up is: does Heights Capital Management, which is Fisker’s only secured backer, deserve to be at the front of the queue to get the money from the liquidation?
Heights has kept saying “yes” without any doubt. But as the sides got ready for a hearing on Monday morning, new information came to light. Things were looking good until a last-minute change of plans threw everything off.
Fisker and Heights agreed late Sunday night to work together for the next three weeks to come up with a plan for how to sell Heights’s assets. The case could stay in Chapter 11 if it wins. If not, it would change to Chapter 7, which would have the result of ending Fisker for good. Also, we might never be able to find out more about how Heights got to be so powerful.
Here’s a quick review: Heights, a branch of Susquehanna International Group, a financial services business, gave Fisker a loan of about $500 million in 2023 in the form of two convertible notes. This meant that the new business could either pay off the debt or turn it into stock. Because of this, there was no collateral to back up the payments. But Fisker didn’t file its third-quarter financial reports on time in November, which was against the terms of the Heights deal. To fix the breach, Fisker promised all of its assets to Heights. This means that Heights will be the first ones to get money when Fisker goes bankrupt. Heights says they are still owed more than $180 million.
Heights recently moved to change the bankruptcy case to Chapter 7. The company says that this will make the process of selling off the rest of Fisker’s assets faster and cheaper. Fisker, on the other hand, has been going through a Chapter 11 case, which lets the company stay alive with only a few employees working on selling its inventory to a leasing business in New York.
Changing to a Chapter 7 would save money on those costs, but it would also bring new problems. Lawyers for the startup have said that Chapter 7 would make it hard to finish getting Fisker’s leftover cars ready to be sold because it would effectively shut down the business and give control of the case to a trustee.
A Chapter 7 conversion would also get Heights closer to getting the money from a bankruptcy before its position as the main lender can be seriously called into question.
The unsecured creditors’ group has been working hard to find that information.
The group, which was made up of unsecured creditors like contract manufacturer Magna and Fisker’s biggest lender, U.S. Bank, looked into the relationship between Heights and Fisker for weeks, as well as what happened when the electric vehicle startup pledged its assets to the bank at the end of last year.
There was going to be a hearing on Monday where the committee could share some of its results before Fisker and Heights came to an agreement at the last minute. The committee’s opposition to converting to Chapter 7 was sent in secret. In addition, new documents included a slide saying that Heights had “profited from Fisker’s death spiral.” The documents also included a list of proof that the committee planned to use at the hearing on Monday.
That list had five emails and several text messages from Geeta Gupta-Fisker, co-founder, CFO, and COO of Fisker, to Martin Kobinger, CEO of Heights. Those messages might have shed some light on the old question of what part Heights played in Fisker’s downfall. But their entry into the public record has been thrown out while talks about a deal continue.
Fisker’s late-Sunday change of heart also relieved some pressure on Heights. Several groups, including the Department of Justice, had been against Heights’s efforts to change the case.
In writing on behalf of the National Highway Traffic Safety Administration, the DOJ said that turning the case into a Chapter 7 case “risks public safety” because it could make it harder for Fisker to fix the problems caused by the multiple ongoing recalls. This was backed up by Fisker’s own complaint, which it sent in last week. It said that it had only fixed about 1,400 of the more than 3,000 cars it was selling.
A Fisker consultant named Jordan Mueller said in a statement that “the service technician workforce responsible for preparing the Sale Vehicles at storage sites across the country has been materially reduced over the past several weeks, potentially jeopardising” the ability to complete the deal.His writing showed that the mood of the workers had already gotten very bad because of the Chapter 11 cases and especially since the Motion to Convert was filed.
These complaints, along with the committee’s sealed one, will now be put on hold for three weeks. They might be used again, though, if there is no deal and Heights and Fisker move to switch to Chapter 7.
Doug Mannal, a lawyer from Morrison Foerster LLP who works for the committee of unsecured creditors, said Monday that he was “hopeful” that a deal could be reached. In a previous meeting, he said that Heights was using Fisker as a “money tree.”
When Mannal left for his trip to Wilmington, Delaware, on Sunday, he thought that there would be a fully fought evidentiary hearing today. This was what he said at the hearing on Monday. “A lot has changed.”
Heights’s lawyer, Scott Greissman of White & Case LLP, said that he is “keeping an open mind” about the possibility of a deal. However, he made it clear that he believes there will be “nothing left” if Fisker’s bankruptcy stays a problem. He told Fisker’s lawyers that agreeing to a Chapter 7 conversion “could not have been an easy decision to make” and thanked them.
He also said that Heights has been “very calm” even though there has been a lot of “vitriol on the record” about the company’s relationship with Fisker. “Today, I don’t think we need to go over this again, and I really don’t want to either.”
For the next few weeks, both sides will try to figure out how to divide the money from the sale of the fleet and any other assets that are liquidated. Fisker is expected to get up to $46.25 million from the sale of the fleet, but Heights said in a filing over the weekend that as much as 90% of that could go to administrative costs and legal fees. This is why the company wants to switch to a Chapter 7 case so badly.
Some people are still wondering what else Fisker has that it can sell. Lawyers for the company say that Magna, the company that makes the cars, has hundreds of millions of dollars worth of equipment at its plant in Austria. Fisker has said that it has about $1 billion in assets in total. But Fisker’s Austrian branch is going through its own bankruptcy process, and it’s not clear if any assets in other countries will become tied to that case.
Also Read: His Pay is Cut to $1 So That Fisker Inc. Can Stay in Bankruptcy
Bryan Resnick, a lawyer for Davis Polk who represents Fisker, said Monday, “If we can’t [reach a settlement] in three weeks, it’s a sign that it can’t be done.” As soon as the meeting was over, Resnick ran straight to Greissman and shook his hand.
What do you say about this story? Visit Parhlo World For more.
