Fisker has only been in Chapter 11 bankruptcy for a few days, but the fight over its assets is already escalating, with one lawyer claiming the startup has been liquidating assets "outside the court's supervision."
The issue at hand is the relationship between Fisker and its largest secured lender, Heights Capital Management, an affiliate of the financial services company Susquehanna International Group. Heights loaned Fisker over $500 million in 2023 (with the option to convert that debt to stock in the startup) at a time when the company's financial distress was looming in the background.
That funding was originally not secured by any assets. However, that changed after Fisker breached one of the covenants when it failed to file its third-quarter financial statements on time in late 2023. In exchange for waiving that breach, Fisker agreed to give Heights first-priority on all of its current and future assets, giving Heights considerable leverage. Heights not only gained the lead role in determining what happens to the assets in the Chapter 11 proceedings but also gave them the opportunity to appoint a preferred restructuring officer to oversee the company's slow decline into bankruptcy.
Alex Lees, a lawyer from the firm Milbank representing a group of unsecured creditors owed over $600 million, expressed in the first hearing in Delaware Bankruptcy Court on Friday that it took "too long" to reach this point. He mentioned that Fisker's delayed regulatory filing was a "minor technical default" that somehow resulted in the startup essentially handing over the entire business to Heights.
"We believe this was a terrible deal for [Fisker] and its creditors," Lees stated at the hearing. "The right thing to do would have been to file for bankruptcy months ago." In the meantime, he mentioned that Fisker has been "liquidating outside the court's supervision" for the benefit of Heights in what he described as "suspect activity." Fisker has been slashing prices and selling off vehicles leading up to the bankruptcy filing.
Scott Greissman, a lawyer representing the investment arm of Heights, dismissed Lees' comments as "completely inappropriate, unsupported," and criticized them as being "designed as sound bites" intended for media attention.
"There may be a lot of disappointed creditors in this case, none more so than Heights," Greissman remarked, adding that Heights extended "an enormous amount of credit" to Fisker. He later mentioned that even if Fisker manages to sell its entire remaining inventory of around 4,300 Ocean SUVs, such a sale would only "maybe pay off a fraction of Heights' secured debt," which currently exceeds $180 million.
Lawyers informed the court on Friday that there is a tentative agreement to sell those Ocean SUVs to an unnamed vehicle leasing company. However, it remains unclear what other assets Fisker could sell to provide returns for other creditors. The company has claimed to have between $500 million and $1 billion in assets, but the filings thus far have only detailed manufacturing equipment, including 180 assembly robots, an entire underbody line, a paint shop, and other specialized tools.
Lees was not the only one concerned about how Fisker ended up filing for bankruptcy. "I don't know why it took this long," remarked Linda Richenderfer, a lawyer with the U.S. Trustee's Office during the hearing. She also expressed "great concern" that the case could transition to a straight Chapter 7 liquidation following the sale of the Ocean inventory, leaving other creditors scrambling for remains.
Greissman admitted at one point that Fisker likely took longer than necessary to seek bankruptcy protection and that some of these disputes could have been more easily resolved if the case had commenced sooner. He even concurred with Richenderfer that "even with a fleet sale, Chapter 11 may not be sustainable."
The parties will reconvene at the next hearing on June 27.
Before adjourning, Judge Thomas Horan thanked all the involved parties for efficiently reaching the hearing despite the influx of filings during the week. He specifically commended the U.S. Trustee's office for working under "really difficult circumstances" to grasp the case with "minimal controversy, in the grand scheme of things."
"I imagine there are a few people who want to catch up on some sleep now," he humorously remarked as he concluded the hearing.
