October 16, 2012

A123 Files Chapter 11, Sells Part Of Business

Waltham-based A123 Systems, the battery and energy-storage systems maker with operations in Westborough and Hopkinton, has filed for federal bankruptcy protection for its U.S. operations and announced it will sell its automotive business and its China-based cathode power manufacturing facilities.

The buyer of the two business units is Johnson Controls, a global manufacturer of energy products and automobile parts. The Milwaukee-based company ranks 67th on the Fortune 500.

According to a statement from A123, Johnson will acquire all of the automotive business operations now based in the Michigan communities of Livonia and Romulus, along with the cathode power manufacturing facilities in China, plus A123's equity interest in Shanghai Advanced Traction Battery Systems, the company's joint venture with Shanghai Automotive in China.
Johnson Controls will also assume $72.5 million in debt while A123 seeks to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

Also as part of the deal, Johnson Controls will license back to A123 some technology for its grid, commercial and government businesses. A123 said it has received interest from potential buyers interested in those business units.

Two months ago, A123 signed a deal with a Chinese firm, Wanxiang Group, that gave it majority ownership of the company's stock. Wanxiang planned to infuse A123 with up to $465 million. But with today's announcement, the company is turning away from that deal, according to David Vieau, A123's chief executive officer.

In Company's 'Best Interests'

Today, Vieau said the company believes the agreement with Johnson and the Chapter 11 filing are "in the best interests of A123 and its stakeholders at this time. We determined not to move forward with the previously announced Wanxiang agreement as a result of unanticipated and significant challenges to its completion.

"Since disclosing the Wanxiang agreement, we have simultaneously been evaluating contingencies, and we are pleased that Johnson Controls recognizes the inherent value of our automotive technology and automotive business assets," Vieau said.

On Monday, A123 said it may seek federal bankruptcy protection after it announced that it expected to default on a bond payment this week.

In a filing with the U.S. Securities and Exchange Commission, A123 said it did not expect to make an interest payment and a 6-percent principal and interest payment that was due Monday on a debt obligation of close to $144 million. The company said it was considering a "broad set of strategic alternatives" to address its ability to pay its bills. "However, there is no assurance that the company will be able to pursue a strategic alternative that will allow it to continue to operate …"

The Obama administration drew criticism over the Wanxiang deal, as A123 received $249 million in stimulus money from the Energy Department. Lawmakers and others had expressed concern that the deal with Wanxiang would allow millions of U.S. government funding to go overseas and that the Chinese company would take intellectual property and manufacturing jobs with it.

However, the U.S. Department of Energy said A123's promising technology also received a $6-million grant during the administration of President George W. Bush as part of its efforts to promote advanced battery manufacturing.

State To File $2.5M Claim On Loan

The Massachusetts Clean Energy Center plans to file a claim to recoup a $2.5 million loan to automotive car battery manufacturer A123 Systems, and Gov. Deval Patrick on Tuesday said he does not believe the state's investment is in jeopardy and remains hopeful the company will continue to be a significant employer in Massachusetts.

"It's a great company. They've added a lot of jobs here. I can say that our own investment through the Clean Energy is a secured investment. It's a senior debt. So I don't have any immediate concern that it's in jeopardy. My biggest hope is that they'll figure out a way to reorganize themselves and continue to produce and to employ people," Patrick told reporters Tuesday.

The Massachusetts Clean Energy Center awarded A123 a $5-million loan in October 2010, half of which was tied to the development of the company's facility in Westborough. The state forgave the initial loan because A123 met the terms of the agreement by investing $12.5 million in capital improvements as part of the build-out in Westborough. The remaining $2.5 million is still outstanding, and a spokeswoman said the Clean Energy Center would file a claim in bankruptcy court to recover the funds. The debt owed to the state is backed by collateral and Massachusetts should be given priority over other lenders for repayment as part of the terms of the loan, the CEC said.

(Material from State House News Service was used in this report.)

Image credit: freedigitalphotos.net

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