Fisker has been given the green light by a bankruptcy judge to sell more than 3,000 of its Ocean SUVs to a vehicle leasing company, a deal that will net the defunct electric vehicle startup a maximum of $46.25 million. The approval of the sale clears the way for the rest of Fisker’s bankruptcy proceedings as it continues to wind down what’s left of its failed business.
The judge’s decision, handed down at a hearing late Tuesday afternoon, comes after Fisker and his legal team received only a major objection to the saleThe Justice Department’s trustee’s office argued that Fisker’s lawyers and its restructuring manager, John DiDonato, didn’t do enough work to show that Fisker properly compared inventory to get the best deal. The trustee’s office also said Fisker didn’t adequately explain how he arrived at the valuation of the vehicles and that it was unhappy with the speed with which its lawyers tried to close the deal.
DiDonato answered each point in more detail in a Tuesday morning depositHe said Fisker had contacted “hundreds” of potential buyers for Ocean SUV stock before its bankruptcy filing in mid-June, “including dealerships, car rental companies, taxi operators and participants in the ride-sharing industry.”
The results of these efforts, however, proved rather disappointing. The only solid lead Fisker found was American Lease, the company that now buys the inventory.
An unidentified automaker and an unidentified company that rents vehicles to ride-hailing drivers were interested in the fleet after the bankruptcy filing, but DiDonato said that interest was fleeting. The unsecured creditors committee also found an interested buyer, which was first revealed last weekDiDonato described the potential buyer as a competitor of American Lease, but noted that they withdrew their offer.
Given all of this, Judge Brendan L. Shannon agreed that DiDonato and Fisker did everything they could to find the best deal possible. He called American Lease a “purple unicorn” in that they not only bought the cars but also agreed to wait until the four outstanding recalls were resolved before using them, to do some work on them themselves and to work with the newly formed Fisker Owners Association to make replacement parts and software support available to more than 2,500 owners.
Shannon credited the U.S. trustee’s office for pushing DiDonato to share more information, which he said helps build a stronger case for how Fisker got to the point where American Lease is the best and only option.
In the coming days, Fisker will sell about 1,000 Ocean SUVs to American Lease and receive about $14 million in return. Another 500 are expected to be sold to American Lease next week, which will bring in an additional $6 million.
The money will be used to continue paying remaining employees working on recalls, distribute software updates and help keep vehicles on the road.
Where the rest of the money Fisker will receive from American Lease will go remains a matter of dispute, as it has been since the first hearing in June.
Fisker’s largest and only secured lender is Heights Capital Management, a subsidiary of financial services firm Susquehanna International Group. Heights lent Fisker more than $500 million in 2023. Those loans were unsecured but could be converted into Fisker stock. But when Fisker filed its third-quarter financial statements in late 2023, the company breached a covenant in its agreement with Heights.
To remedy this situation, Fisker secured the remaining balance to Heights by pledging all of its assets. Heights has repeatedly asserted during the bankruptcy proceedings that this gives it a right of first refusal on any sale of Fisker’s assets.
Chapter 7 is looming
At Tuesday’s hearing, it was revealed that Heights plans to file a motion to convert Chapter 11 to a Chapter 7 liquidation. The company, the U.S. trustee, the unsecured creditors’ committee and other parties were able to negotiate with Heights not to ask a judge to approve that motion until at least July 29.
Heights’ attorneys have made clear that they view the case as a liquidation. Scott Greissman, one of Heights’ attorneys, said Tuesday that it was “probably the most widely publicized Chapter 7 conversion in history.” He added that the firm wanted to liquidate Fisker’s assets as efficiently as possible without spending as much money as would be required to complete a Chapter 11 proceeding.
Attorneys for the unsecured creditors’ committee and the U.S. trustee’s office have has challenged Heights’ claim to the assets in several hearings to date. But these arguments have been made mostly at a superficial level, because the priority – for almost all parties – has been to get the fleet sale approved (and to ensure that the process was appropriate) so that the company does not go bankrupt altogether.
But based on that fateful 2023 pledge, Heights’ claims could extend to Fisker’s many other assets beyond Ocean’s remaining inventory. The company still owns hundreds of millions of dollars’ worth of factory equipment in Austria (where contract manufacturer Magna is located). The business entity that oversaw that part of the business, Fisker GmbH, is the subject of its own insolvency proceedings.
That apparently caused tensions. Fisker Austria GmbH wanted to include those vehicles in its own insolvency proceedings. DiDonato said he had to negotiate with Fisker Austria GmbH to include the 118 Oceans at the plant and another 480 at a nearby port in Belgium in the sale of the fleet to American Lease. That involved working with the administrators of that insolvency process as well as founder, CFO and COO Geeta Gupta-Fisker.
Linda Richenderfer, an attorney representing the U.S. Trustee’s Office, said she found this “particularly troubling” given Gupta-Fisker’s fiduciary duty to parent company Fisker Inc. Gupta-Fisker and her husband, founder and CEO Henrik Fisker, are still employed by the company.
It was also revealed Tuesday that Heights has filed a $1 billion claim on assets in the Fisker Austria GmbH proceedings.
As vehicle sales begin to flow into American Lease, the parties will now turn their attention to upcoming hearings – one on July 22 and another on July 29.
“It’s important that (Fisker) and the (unsecured creditors) committee not be hamstrung by a so-called secured creditor,” Doug Mannal, the committee’s attorney, said Tuesday. “We’re doing our homework, but I think it’s important that we have the time, and the opportunity, to go all the way to the 29th to see if we can get this done and make progress. We just need time.”
