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: