A123 gets OK for replacement $50 million DIP; bid procedures delayed

By Jim Witters

Wilmington, Del., Nov. 5 - A123 Systems, Inc. received approval for a replacement $50 million interim debtor-in-possession financing facility during a Nov. 5 hearing in the U.S. Bankruptcy Court for the District of Delaware.

However, a ruling on the company's proposed bid procedures for the sale of some or all of its assets was postponed until Nov. 8 to allow A123 and other parties to negotiate outstanding issues.

As previously reported, Wanxiang America Corp. stepped forward with a $50 million single-draw term DIP loan to replace a proposed $72.5 million DIP offered by stalking horse bidder Johnson Controls, Inc.

Robert M. Caruso, a managing director for the debtors' financial adviser Alvarez & Marsal, testified during the hearing that the Wanxiang loan offered the most favorable terms in the market.

An offer from Apollo Global Management, LLC, was rejected, he said.

New DIP terms

The Wanxiang facility matures on the earliest of:

• 20 days after entry of the interim order;

• 30 days after the petition date unless the court has entered an order approving sale procedures for the transportation business;

• The date of the consummation of the sale of the transportation business;

• 60 days after the petition date if the auction has not commenced;

• 62 days after the petition date if the auction has not been completed;

• 65 days after the petition date if a sale order has not been entered by the court; or

• Dec. 31.

Interest is 12%. Default interest is 14%.

A123 is to pay an upfront fee of $1.25 million.

The exit fee is 0.5% of the amount of any portion of the loan repaid or prepaid.

At closing the company also will pay up to $250,000 of the borrower's prepetition legal fees.

A final DIP hearing is scheduled for Nov. 26.

Bid procedures

Following an hour-long recess in the hearing to allow parties to negotiate resolutions to objections to the proposed bid procedures, A123 attorney D. J. Baker told the court the more efficient use of the court's time would be to put on testimony from Caruso, then adjourn the hearing.

Baker said Wanxiang and JCI are negotiating over stalking horse status and the official committee of unsecured creditors - appointed on Nov. 2 - is negotiating with the U.S. Department of Energy.

As previously reported, JCI has offered to buy the automotive business assets, with a purchase price of $116 million.

Wanxiang said in court that it would like to be the stalking horse bidder and is prepared to make an offer for all of A123's assets, not just the automotive sector.

Under the proposed timeline, bids must be submitted by Nov. 16. Wanxiang said it wants the bid deadline moved to Dec. 17, with an auction and sale hearing completed on or before Dec. 21.

Wanxiang and the U.S. Trustee object to the proposed $3.75 million breakup fee and the $4 million expense reimbursement for JCI.

And Wanxiang objects to the minimum initial overbid of $2.5 million because those amounts are higher than Wanxiang's proposed overall stalking horse protections.

Finally, Wanxiang objects to the asset purchase agreement, which affords JCI protections if the debtors fail to close the sale, but provides no such protection for A123 should JCI fail to close.

By Nov. 8, the parties may have worked out their issues, allowing A123 to bring a consensual bid procedures motion before the court, Baker said.

Foreign buyer questioned

Aside from the courtroom proceedings, two U.S. senators have requested a formal investigation of the potential sale of A123's assets to Wanxiang.

Sens. John Thune, R-S.D., and Chuck Grassley, R-Iowa, sent a letter on Nov. 1 to U.S. Treasury Secretary Timothy Geithner, who has oversight of the Committee on Foreign Investment in the United States.

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

The senators said they are concerned with the transfer of technology and U.S. military contracts to a Chinese company.

Wanxiang America is a manufacturer of automotive components based in the United States. Wanxiang America is a wholly owned subsidiary of Wanxiang Group Corp., a Chinese company with more than $13 billion in annual revenue and more than 45,000 employees worldwide.

Based in Waltham, Mass., A123 designs, develops, manufactures and sells rechargeable lithium-ion batteries and battery systems. The company filed for bankruptcy on Oct. 16 under Chapter 11 case number 12-12859.

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