In Another Blow For "Green Industry" A123 Files For Bankruptcy After Collecting Hundreds Of Millions In Government Grants

Tyler Durden's picture

That troubled battery-maker A123 has just filed for bankruptcy (and no, in this case bankruptcy is not equal with deleveraging) should not be news to anyone who has followed the US government subsidized trainwreck of a company (especially since as we updated yesterday it was known it would miss its bond payment today). Well actually we take that back. The bankruptcy may come as a surprise to the president. Recall that Obama called A123 Chief Executive Officer David Vieau and then-Michigan Governor Jennifer Granholm during a September 2010 event celebrating the opening of the plant in Livonia, Michigan, that the company received the U.S. grant to help build. Surprise and epic humiliation that is. "This is about the birth of an entire new industry in America -- an industry that’s going to be central to the next generation of cars," Obama said in the phone call, according to a transcript provided by the White House. "When folks lift up their hoods on the cars of the future, I want them to see engines and batteries that are stamped: Made in America." Needless to say if the car is a flaming Fisker Karma or Chevy Volt, the hoods may be too hot to lift but that's another story. Most importantly, it will come as a big loss to the firm's equity holders (who have already lost their entire investment so hardly a surprise) creditors, who will likely be wiped out almost entirely (listed below), but most importantly US taxpayers, who funded the firm not on one occasion as conventional wisdom will have it, but with four distinct Federal and State agency grants, as is highlighted in the first day motion affidavit by David Pyrstash in support of the Chapter 11 petition.

Some more on the actual bankruptcy:

A123 Systems Inc. (AONE), a maker of rechargeable lithium-ion batteries for electric cars, filed for bankruptcy after failing to make a debt payment that was due yesterday.

The company listed assets of $459.8 million and debt of $376 million as of Aug. 31 in Chapter 11 documents filed today in U.S. Bankruptcy Court in Wilmington, Delaware.

 

The bankruptcy filing may fuel further political debate over government financing of alternative-energy and transportation businesses. Federal grants and loans to companies including A123, Fisker Automotive Inc. and Tesla Motors Inc. have drawn scrutiny from congressional Republicans following the September 2011 bankruptcy filing of solar-panel maker Solyndra LLC two years after it received a $535 million loan guarantee from the U.S. Energy Department.

 

Electric-vehicle sales since 2011 totaled fewer than 50,000 through September, just 5 percent of Obama’s target to have 1 million such vehicles on U.S. roads by 2015.

 

Republican presidential candidate Mitt Romney said last month that Obama has picked “losers” for alternative-energy loans and grants. His running mate, Paul Ryan, has called for all green-energy subsidies to be eliminated.

 

A123 has posted at least 14 straight quarterly losses. Its shares have fallen 85 percent this year to 24 cents at yesterday’s close in New York and traded at 16 cents at 8:29 a.m. before the start of regular trading.

And with a few hours left until the next presidential debate, here is the full list of US government grants that will have funded a negative IRR initiative, and which will likely be quite prominently featured in tonight's theatrical spectacle.

The Department of Energy Grant

 

In December 2009, A123 entered into an agreement establishing the terms and conditions of a $249.1 million grant awarded under the U.S. Department of Energy (“DOE”) Battery Initiative to support manufacturing expansion of new lithium-ion battery manufacturing facilities in Michigan. Under the agreement, as amended, the DOE is providing cost reimbursement for 50% of qualified expenditures incurred from December 1, 2009 to December 2, 2014. The agreement also provides for reimbursement of pre-award costs incurred from June 1, 2009 to November 30, 2009. There are no substantive conditions attached to this award that would require repayment of amounts received if such conditions were not met. Through June 30, 2012, A123 has incurred $260.6 million in qualified expenses, of which 50%, or $130.3 million, are allowable costs for reimbursement. Nearly all of the allowable costs have been reimbursed.

 

Center of Energy and Excellence Grant

 

In February 2009, the State of Michigan awarded A123 a $10 million Center of Energy and Excellence grant. Under the agreement, the State of Michigan will provide cost reimbursement for 100% of qualified expenditures based on the achievement of certain milestones by March 2012. There are no substantive conditions attached to this award that would require repayment of amounts received if such conditions were not met. A123 received $3 million of this grant in March 2009 and $6 million of this grant in July 2010, with additional payments to be made based on the achievement of certain milestones in the facility development. Through June 30, 2012, A123 used $8.8 million of these funds, of which $7.9 million and $0.9 million was recorded as an offset to property, plant and equipment and operating expenses, respectively.

 

Michigan Economic Growth Authority

 

April 2009, the Michigan Economic Growth Authority offered A123 certain tax incentives, which can be used to offset the Michigan Business Tax owed in a tax year, carried forward for the number of years specified by the agreement, or be paid to A123 in cash at the time claimed to the extent A123 does not owe a tax. The terms and conditions of the High-Tech Credit were established in October 2009 and the Cell Manufacturing Credit in November 2009. The Cell Manufacturing Credit agreement authorizes a tax credit or cash for A123 equal to 50% of capital investment expenses related to the construction of A123’s integrated battery cell manufacturing facilities in Michigan, commencing with costs incurred from January 1, 2009, up to a maximum of $100 million over a four year period. The tax credit cannot exceed $25 million per year and can be submitted for reimbursement beginning in tax year 2012. Through June 30, 2012, A123 has incurred $200 million in qualified expenses related to the construction of the Livonia and Romulus facilities. When A123 has met the filing requirements for the tax year ending December 31, 2012, A123 expects to begin receiving $100 million in proceeds related to these expenses.

 

Department of Energy, Labor and Economic Growth

 

In December 2009, the State of Michigan awarded A123 $2 million to assist in funding A123’s smart grid stabilization project, the purpose of which is to develop and improve the quality of application of energy efficient technologies and to create or expand the market for such technologies. A123 received an advance of $0.9 million in December 2009 and another $0.9 million in February 2011. Through December 31, 2011, A123 incurred $1.6 million in allowable costs, which was recorded as an offset to operating expenses. During the year ended December 31, 2011, the remaining $0.4 million in funding was cancelled.

Sumtotal of grant funds and incentives used (and now forever lost): $249.1+$8.8+$100+$1.6 or let's round it down to $300 or so million.

The full pre-petition creditor breakdown.

 

The full creditor matrix is presented below. Anyone who sees their name on this list, our apologies.

 

 

The complete affidavit with all the juicy details of the rise (not so much) and fall (much more) of A123 can be found here:

 

 

And the obligatory Chevy Volt video:

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francis_sawyer's picture

All you need to do is take out the battery & cut out the floor & Fred Flintstone would be proud to own it...

DUNTHAT's picture

Do we have this much trouble with golf carts??? I mean, c'mon, use their technology for crying out loud!!

Richard Chesler's picture

This is about the birth of an entire new industry in America --

The Obama Campaign Contributors Industry?

GeezerGeek's picture

I think that the timing was orchestrated by the Romney campaign to take the wind out of Obama's sails just prior to the second debate.

Can anyone tell me if any green companies who received Obama stimulus funds are still in business?

TradingChief's picture

Can anyone think of ONE Green business that is worthy of remaining in business? All we did was make a bunch of 1960s treehuggers rich with technology that does not work or work efficiently?

redpill's picture

This is what happens when you let a band of not-as-smart-as-we-pretend-to-be academics and leftist activists try to centrally plan their impossible utopia on a national scale.  It's akin to thinking if you flap your arms hard enough you'll fly; it doesn't matter how hard to try, there are some things you can't force.

yrbmegr's picture

Yes, I think there are 1 or 2 still in business.  Or more.

iDealMeat's picture

The attached Volt commercial is awesome..  +1

spekulatn's picture

Building a better tomorrow.... one bankruptcy at a time.

franzpick's picture

A123, you didn't build this bankruptcy case by yourself, someone helped you along the way

Corrupt government agencies misusing taxpayer money, led by the head dreamer-and-schemer, mr. NoBama.

Anglo Hondo's picture

Otherwise known as Bull-OCCI.  Yes, I do smell something.

 

Turin Turambar's picture

Lefties have always been better with abortion than birth, so this is just par for the course. :-O

Stock Tips Investment's picture

These are times of trouble. Unfortunately, many companies like this to stay in the road. However, do not think this is a problem that is repeated across the board.

DCFusor's picture

Sure, if you want a 10k mile life, a 10 mph top speed, and well, a golf cart.  Personally, I'll take my Volt over that and love kicking ricky rice-racer's ass on the twisties around here with it - and solar power made in America - at my place.  FWIW, a Volt doesn't use A123 batteries, they use LG. It's a lot closer to a 3 series beemer than a golf cart in the bargain.

A123 had some BIG quality control problems and had to recall most of their output, used in Fiskar cars which DID catch on fire in the wild, not just in a total-loss crash test.  Several Volts have been total-lossed in the wild and not one has caught fire, FWIW.  GM was going to use them in a new model (spark) but I guess we're safe now.

Cute chick with Volt: http://www.youtube.com/watch?v=_WXqj384Zfo

Another Volt owner after a year owning one (I know this guy):

http://www.youtube.com/watch?v=sYPI0RO_qM4

 

 

 

francis_sawyer's picture

Lieutenant Maverick clears his throat and tells you that your data is incorrect on the Mig [golf cart]...

10K = 6.2 miles... On my EZ-Go, I can get 3 rounds of golf (that's 7,000 yards, plus, green to tee boxes, plus, not driving in a straight line (when I'm not finding the fairways with the drives)...

21,000 yards = 63,000 feet = 12 miles... & it'll do more than 30MPH before the governor kicks in... I'm not trying to compare it, but it didn't cost $40k either (and it offroads like a champ because it's firred with offroad tires & suspension)...

Flakmeister's picture

What's your handicap?

I mean aside from being a Libertarian.....

francis_sawyer's picture

@Flak

Back in the day I was a [+2]... Missed qualifying for the US Amateur by one shot (in 2001) when I tripled a hole on the back nine of the 2nd round... Then again ~ I sucked ass in two US Open qualifiers by shooting a 79 & an 81... I got the dreaded letter (after the 2nd time) from the USGA that told me my services were no longer required...

My game was that I couldn't hit an airport runway with a drive (but I could get up & down from a picnic basket within 50 yards)... Those were the days...

Flakmeister's picture

Nice....

I'm stuck at +9.... I simply don't play enough to get it lower... I'm the opposite, short game is erratic, but I'm very capable with the Irons and the Driver....

My fav golf anecdote, after finishing a round, the pro asked me how it was, I said great since I eagled #1 (345 yd par 4, slight dogleg left), he said "Great, how far did you pitch in from" and I replied that I made a 7 ft putt....

francis_sawyer's picture

Hitting par 4's in one reminds me of this story...

WAY back in the day I was a member at Wood Ranch GC out in Simi Valley, Ca. (famous for the Rodney King trials)... Anyway ~ there was this dude there who, up until that time, was the biggest scam artist I'd ever met...

He was a nice guy (& funny as shit)... Nobody ever really knew what his deal was but I guess he was into real estate in some way (this was around '90-'91)... He was always on credit for something because he had this story that he was waiting on a $5 million dollar settlement on some deal (which never seemed to come)... I'd been to his mansion in the hills a couple of times which was very nice, about 15,000 sq ft. (but was practically unfurnished)... He even hooked me up with [pretty hot] girlfriend of his wife at a SuperBowl party he hosted [Cowboys vs. Bills I]...

Anyway... (par 4's)... This dude could hit the ball a country mile... & we had this one par 4 (downhill over water), that you could reach with a driver when the Santa Ana winds were blowing... & that was with one of those old Taylor Made steel head 'Burners' that probably look like a 5 wood today... From the tee though ~ the hole was sort of blind though because a huge pompous bush kind of hid a back right pin placement... Moving on ~ there was this 'Hole in One' club that we had as members (about 400 members), that if anyone got a hole in one on the course [witnessed], then EVERYBODY's bar tab would get charged $10 (=$4,000)... A notice would go up & everyone could order a free drink at the bar (for a week's period)... Then ~ the BALANCE would go to whoever made the hole in one as a clubhouse credit... After drinks it usually amounted to $2,000 - $2,500...

This son of a bitch made 2 holes in one on that PAR 4 (8th hole)... The second time, though, I was playing in his foursome I think I discovered the scam... Remember ~ a back right pin was BLIND to the tee... He had his wife playing in the foursome ahead of us... My guess is that she left a strange ball in the hole (like a 'Titelist 8')... So all the guy had to do was basically hit one in the direction of the hole, that looked about the right distance, then he said... 'I was playing a TITELIST 8'... Who could argue?... What was I gonna say?... The dude was about 6'4" & prolly 290...

He'd have probably done well on Wall St... Those were fun days... Steve [Volcano] Pate would come off the tour & play with us (as well as Keith Clearwater)... Charlie Wi (who is still winning on the PGA)  used to play with us too)... I sold him a set of 'numbered' MacGregor Nicklaus '67 irons... Also ~ Mitch Voges (who won the 1991 US Amateur at the Honors Course)... I still have the 1991 signed bag from the Kiawah Island Ryder Cup that Steve Pate brought to our club charity auction (he was on that team)...

(BTW ~ you're a [-9], not a "+"... Even Rory McIlroy is probably only a +6... Gotta shoot a lot of rounds in the 60's to get to a +9 under both the USGA & R&A systems...

Flakmeister's picture

Re: the Handicap... you are correct, my bad...

Good story though,...

 

LongSoupLine's picture

You didn't bankrupt that company.

(but you did pay for it)

Plymster's picture

Oh Noz.  Another green start-up collapses.  That 300 million must've taken the Fed a full 3 hours to print up.  How many restaurants have gone under in this period?  If only the US were supporting more useful companies with trillions of dollars of lifetime support, like Boeing, Winchester, Goldman Sachs, Monsanto, etc. 

Oh wait.  That's right, we are.

mckee's picture

Batteries being made to power engines? Maybe that should have been the red flag.

The big unzip's picture

Will someone tell me when I gan release my ankles, stand up stright, and put my pants back on, or shoud I just learn to like it?

Winston Churchill's picture

If obummer gets back in ,you will need a bigger butt plug.

knukles's picture

FDA is having a special on Gubamint Approved Vaseline today...

EscapeKey's picture

...and if Mitt gets back in, you get a voucher with which to buy a brand new butt plug.

Cognitive Dissonance's picture

Grants don't work. Try billion dollar money transfers directly to the patient a la The Fed.

It worked for the banksters.

EscapeKey's picture

Are you telling me governments aren't very good at picking winners?

Are you telling me that governments do not guide the invisible hand?

Terminus C's picture

They do indeed control the invisible hand... its the one that reaches in to your bank account and steals your capital while most are unaware.  We also call it inflation.

yrbmegr's picture

By "winners", you mean defense contractors, right?

Sixdeuce062's picture

bend over america time for your helping of the "green" weenie

Midas's picture

Could we have built a natural gas grid across the entire nation with the money the FEDs have blown on failed "green" companies?

ParkAveFlasher's picture

Didn't see that whole "misallocated capital" thing coming.

Da55id's picture

Current annual self immolation score for gas cars = 287,000 each year.

Score for the Volt in actual use = zero

 

Funny thing is when I was a kid, my parents taught me that facts matter. Silly me.

DCFusor's picture

Yeah, silly you.  I own one myself and love it.  These guys seem to live in a fantasy world only slightly less weird than Bernankes, though.   Only they can't print gas for their guzzlers, not even the bernank can do that, but we can print electricity with our solar panels.  My Volt hasn't used a single nickels worth of power company power in the over a year I've had it.  And I have 30 year old PV panels that still put out.

You'd think that guys who claim to be good with money would figure that one out, but maybe it's just claims, not reality - overcompensated inferiority complex or something?  Go ahead, junk away, I won't even check.  Why pay attention to the opinions of the ignorant?

Da55id's picture

DCFusor, In case you do check back, I'd like to talk to you about your solar setup. I live in northern VA and need to work out a tree line problem so I can arbitrage net metering to fuel my volt. For all you preppers out there, I'm engaging in micro-prepping by decoupling from as much as I can. Risk off where possible.

Da55id's picture

You can find me at info at mfoundation dot org

francis_sawyer's picture

  "I have 30 year old PV panels that still put out."

~~~

How many semolians did you PUT OUT to buy those PV panels 30 years ago (on top of the $40K you wasted on your flamethrowing batmobile)?

@Da55id ~ don't worry about the treeline... Just park your Volt right underneath those babies & they'll be burned to a crisp sooner than you cn say 'net metering'...

Papasmurf's picture

You must be coming pretty close to break even on your 30 year old solar panels if we neglect the opportunity cost of investing that capital elsewhere.

francis_sawyer's picture

Last week I calculated that, at $1.00 more per gallon of gas, & with normal driving habits, it would take 87 years to recoup the $40K for the MATCHBOX car...

Cpl Hicks's picture

As if 30 year old solar panels would still be producing anything more than shade. No way.