Fisker is just days away from Chapter 11 bankruptcy, and the battle for its assets has already heated up, with a lawyer claiming the startup has been liquidating assets “outside of the court’s oversight.”
At issue is the relationship between Fisker and its largest secured lender, Heights Capital Management, a subsidiary of financial services company Susquehanna International Group. Heights loaned Fisker more than $500 million in 2023 (with an option to convert that debt into equity in the startup) at a time when the company’s financial distress was showing behind the scenes.
This financing was not originally secured by any assets. That changed after Fisker breached one of the agreements when it failed to timely file third-quarter financial statements at the end of 2023. In exchange for waiving that breach, Fisker agreed to give Heights first priority on all assets its present and future. giving Heights considerable leverage. The Heights not only gained pole position to determine what happens to the assets in the Chapter 11 proceedings, but also gave them the opportunity to capture a preferred restructuring officer to oversee the company’s slow descent into bankruptcy.
Alex Lees, an attorney with the firm Milbank, which represents a group of unsecured creditors owed more than $600 million, said at the first hearing of the proceeding Friday in Delaware Bankruptcy Court that it took “a long time.” to get to this point. He said Fisker’s late regulatory filing was a “minor technical default” that somehow led to the start of “essentially[ing] all business goes to the Heights.”
“We believe this was a terrible deal for him [Fisker] and its creditors,” Lees said at the hearing. “The right thing to do would have been to file for bankruptcy months ago.” Meanwhile, he said, Fisker has been “liquidated outside of court supervision” for the benefit of Heights in what he said amounts to “suspicious activity.” Fisker spent the pre-bankruptcy period cutting prices and selling vehicles.
Scott Greissman, an attorney representing Heights’ investment arm, said Lee’s comments were “completely inappropriate, completely unsupported” and derided them as “designed as fat bites” intended to be picked up by the media .
a “There could be a lot of disappointed creditors” in this case, Greissman said, “none more so than the Heights.” He said Heights gave “a tremendous amount of credit” to Fisker. He later added that even if Fisker is able to sell all of its remaining inventory — about 4,300 Ocean SUVs — such a sale would “probably pay off some of Heights’ secured debt,” which currently sits at more than 180 million dollars.
Lawyers told the court on Friday that they have an agreement in principle to sell Ocean’s SUV to an unnamed car rental company. But it’s not immediately clear what other assets Fisker might sell in order to secure returns for other creditors. The company has claimed to have between $500 million and $1 billion in assets, but the filings so far only detail manufacturing equipment, including 180 assembly robots, an entire underbody line, a paint shop and other specialized tools.
Lees was not alone in his concern about how Fisker ended up filing for bankruptcy. “I don’t know why it took so long,” Linda Richenderfer, an attorney with the U.S. Administrator’s Office, said during the hearing. She also noted that she was still reviewing new filings late Thursday and in the hours before the hearing.
She also expressed “grave concern” that the case could turn into an outright Chapter 7 liquidation after Ocean’s inventory is sold, leaving other creditors to fight for scrap.
Greissman said at one point that he acknowledged that Fisker “probably took longer” to file for bankruptcy protection and that some of these disputes could have been “resolved more easily” if the case had started sooner. . He even 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 session on June 27.
Before dismissing everyone, Judge Thomas Horan thanked all parties involved for arriving at the hearing “fairly clean” despite the rush of files this week. He singled out the US Trustee’s office for working under “really difficult circumstances” to “get a head start” on the issue with “minimal controversy, in the scheme of things.”
“I imagine there are a few people who want to get some sleep now,” he said with a smile as he ended the session.