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A123 Systems envisions Feb. 1 sale close

by Jamie Mason  |  Published January 24, 2013 at 3:04 PM
Government-backed lithium-ion battery maker A123 Systems Inc. believes the sale of its assets to Wanxiang America Corp. and Navitas Systems LLC will close next week.

According to a Jan. 18 statement from A123 Systems, the Waltham, Mass., company expects both the $256.6 million sale of substantially all of A123's assets to Wanxiang and the $2.25 million sale of its government business to Navitas Systems to close Feb. 1. The latter deal includes all U.S. military contracts.

Judge Kevin J. Carey of the U.S. Bankruptcy Court for the District of Delaware in Wilmington, meanwhile, ruled Tuesday, Jan. 22, that stalking-horse bidder Johnson Controls Inc. will receive a $2.5 million breakup fee and up to $3 million for expense reimbursement when the sales close or when the Committee on Foreign Investment in the United States approves the Wanxiang deal, a source familiar with the case said.

CFIUS is scrutinizing the transaction for possible national security risks. The interagency panel charged with examining foreign buyers' purchases of U.S. assets for national security risks entered the picture because Wanxiang America of Chicago is a unit of Wanxiang Group Corp., China's largest auto parts maker and one of China's largest nonstate-owned companies. The U.S. arm has been operating since 1994.

Carey approved the sales on Dec. 11.

Johnson Controls had offered $125 million for the debtor's automotive business before a Dec. 6 auction. As a result of losing the auction, the Milwaukee manufacturer of automotive components and building controls is entitled to the breakup fee and expense reimbursement.

The official committee of unsecured creditors, though, requested the breakup fee and expense reimbursement continued to be held in escrow. The creditors' committee has been objecting to the payment since the sale hearing because of Johnson Controls' alleged efforts to prevent the sale, court filings said.

The committee is pursuing discovery against Johnson Controls to find out if the company lobbied against the sale, the nature of the lobbying and what other efforts the stalking-horse bidder made against the sale, according to committee counsel Sunni P. Beville of Brown Rudnick LLP.

Beville said the unsecured creditors have requested documents from Johnson Controls and plan a deposition.

Johnson Controls appealed the Wanxiang sale on Dec. 17 to immediately obtain the breakup fee and expense reimbursement. The appeal is running the ordinary course, the source said.

A123, a designer, developer, manufacturer and seller of rechargeable lithium-ion batteries and energy storage systems, filed for Chapter 11 on Oct. 16 with affiliates A123 Securities Corp. and Grid Storage Holdings LLC. The debtor has received numerous grants and awards from state and federal governments.

The company's petition came after A123 Systems missed an almost $2.7 million interest payment on its 3.75% convertible subordinated notes due Oct. 15. The missed interest payment caused it to default on its debt, filings with the Securities and Exchange Commission said.

Before filing for Chapter 11, A123 received an investment offer from Wanxiang, but because of certain closing conditions, only a portion of the agreement was funded. A123 then couldn't find additional funding before its liquidity fell below the amount needed to continue operating outside of bankruptcy.

Wanxiang is providing A123 with a $50 million debtor-in-possession loan.

A123 has suffered from contract and warranty issues in the past several years, along with increased competition in the battery industry, that affected its liquidity, court papers show.

The company primarily focuses on developing new lithium-ion batteries and battery systems for hybrid electric vehicles, plug-in hybrid electric vehicles and electric vehicles, as well as electrical grid services and industrial and commercial products, according to court filings.

A123's products include starter batteries and lead acid replacement batteries, as well as packaged modules and multimegawatt and prismatic battery systems. The batteries are made from a patented nanophosphate material.

D. Jan Baker, Caroline A. Reckler and Adam S. Ravin of Latham & Watkins LLP and Mark D. Collins and Michael J. Merchant of Richards, Layton & Finger PA are debtor counsel.

Lazard is the debtor's financial adviser, while Alvarez & Marsal North America LLC is its restructuring adviser.

Joshua A. Feltman, Andrew R. Brownstein and David K. Lam of Wachtell, Lipton, Rosen & Katz are counsel to Johnson Controls.

John R. Box, Thomas P. Brown and Bojan Guzina of Sidley Austin LLP represent Wanxiang.

William R. Baldiga and John F. Storz of Brown Rudnick and Mark Minuti of Saul Ewing LLP are also counsel to the creditors' committee.

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Tags: A123 Systems Inc. | CFIUS | Johnson Controls | Judge Kevin J. Carey | Navitas Systems LLC | Sunni P. Beville | Wanxiang America Corp.

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Jamie Mason

Senior Editor: Out of Court Restructuring



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