Coda's $25 million asset sale to Fortress OK'd over trustee objection

By Jim Witters

Wilmington, Del., June 11 - Coda Holdings, Inc.'s $25 million sale of substantially all its non-automotive assets to Fortress Investment Group affiliate FCO MA Coda Holdings LLC received approval over objections from the U.S. Trustee's Office during a June 11 hearing in the U.S. Bankruptcy Court for the District of Delaware.

FCO MA Coda Holdings is leading a consortium of lenders that provided the debtor-in-possession financing for the case and is the purchaser.

Judge Christopher S. Sontchi said the asset purchase agreement and sale motion eliminated an allocation waterfall provision that raised concerns and addressed other issues he expressed during earlier hearings.

David L. Buchbinder, representing the trustee, argued that forgiveness of two loans totaling about $2.7 million to Coda executives and an insurance-policy cap on recoveries from directors and officers were unfair to creditors and should be struck from the sale agreement.

In overruling the trustee's objections, Sontchi said he was "relying hard" on the work of the official committee of unsecured creditors, which supported the sale.

Committee attorney Bennett S. Silverberg told the court that the committee would prefer that those claims remained with the debtors estate for liquidation and possible recovery for creditors.

However, the purchaser insisted upon those provisions as part of the purchase agreement, and the committee "could not foresee a circumstance in which a liquidation trustee would go after the personal assets" of the executives, directors and officers involved," Silverberg said.

Revised agreement

Coda attorney Jeffrey M. Schlerf said the debtors revised their deal with the creditors committee and the secured lenders, filing a new sale order, a new asset purchase agreement, a plan term sheet and a restructuring support agreement late June 10.

A key revision was the contribution of $1.7 million in cash as part of the $25 million purchase price for the assets.

Coupled with about $1.9 million remaining of the debtor-in-possession financing facility, the debtors anticipate payment in full of all administrative and priority claims, Schlerf said. The previous agreement did not provide for payment of all those claims.

Under another revision, the $11 million avoidance action against Tianjin Lishen Battery JSC, Ltd., for funds it received from Coda during the past year outside the normal course of business remains with the debtors estates.

Potential actions against directors and officers - estimated to be as high as $20 million - also remain with the debtors estates, Schlerf said.

The lenders also will contribute $200,000 to the liquidation trust to help pay for litigation costs. No adversary actions will be filed against core vendors.

Silverberg said the revised agreement also includes:

• After payment of administrative and priority claims, any remaining funds from the DIP facility and the $1.7 million cash from the purchaser will flow into the liquidation trust.

Of those proceeds, the first $500,000 will be set aside for distribution to general unsecured creditors. The proceeds exceeding $500,000 will be divided, with one-third going to the general unsecured creditors and two-thirds going to pay any deficiency claims of the lenders;

• When proceeds from the estate's causes of action reach $775,000, the holders of deficiency claims will begin sharing with the general unsecured creditors on the same two-thirds/one-third basis;

• The buyer receives all proceeds from the U.S. assets;

• After the buyer collects $500,000 from the China assets, net of costs, the buyer and the general unsecured creditors will share the additional proceeds on the two-third/one-third basis; and

• The lenders will pay the costs of liquidation.

Addressing the concerns of the U.S. Trustee and attorney Julia Klein - who represents a putative class of Worker Adjustment and Retraining Notification Act claimants - debtors attorney Roberto J. Kampfner told the court that all avoidance actions remain the property of the estate and subject to liquidation or litigation by the estate until all administrative and priority claims are paid in full.

"This agreement provides for the reasonable prospect of a reorganization plan," Schlerf said.

New debtors

Because of the decision to leave the Lishen claim with the debtors, Coda had to add subsidiaries Lio Energy Systems Holdings LLC and Miles Electric Vehicles Ltd. as debtors in the bankruptcy case, Schlerf said.

The subsidiaries' primary assets are their actions against Lishen "and a bank account with about $100 in it," he said.

Coda, a Los Angeles-based manufacturer of electric cars and energy products based on lithium-ion batteries, filed for bankruptcy on May 1. Its Chapter 11 case number is 13-11153.

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