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Another Stimulus-Funded Company, A123, Fizzles into Bankruptcy



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Yesterday the FT reported that A123 Systems, a car-battery maker and stimulus-grant recipient, was likely to fail to make a payment on some of its loans, apparently because a Chinese company’s current plan to take over its debts in exchange for 49.5 percent of A123 relies on approval by a foreign-investment commission (the original plan, announced in August, would have given the company, Wanxiang, majority control of A123, pending guarantees that A123 will receive the rest of its unallocated federal funding). Today, Bloomberg explains that the non-payment has sparked bankruptcy proceedings:

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. Chapter 11 is the section of the Bankruptcy Code used by companies to reorganize.

A123 didn’t expect to be on time with an interest payment due yesterday on $143.8 million of notes expiring in 2016, or to make a payment due yesterday on $2.76 million in outstanding 6 percent notes, the Waltham, Massachusetts-based company said yesterday in a regulatory filing.

“The company may not have sufficient cash to fund operations and may need to seek the protections provided under the U.S. Bankruptcy Code,” A123 said.

A123, which received a $249.1 million federal grant in 2009 to build a U.S. factory, needed a financial lifeline after struggling with costs from a recall of batteries supplied to Fisker Automotive Inc., the plug-in hybrid luxury carmaker. A123 announced in August that it was working on a deal with Wanxiang Group Corp., China’s largest auto-parts maker, for financing in exchange for a majority ownership stake.

President Obama called then-governor of Michigan Jennifer Granholm in September of 2010 to celebrate the opening of an A123 plant in the state, saying “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. 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.’”

A123 is current trading at about 7 cents a share, giving it a market cap $11 million. That’s a casual 4 percent of the value of the federal stimulus grant it received in 2009.

As the Bloomberg story explains, the battery company supplies lithium-ion batteries to, among others, Fisker Automotive, the U.S.-government-funded maker of an extremely expensive, bloated, and not-that-efficient (but handsome!) plug-in electric car.



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