Fisker assets to be sold at auction after lender bid limited

(Bloomberg) -- Assets of Fisker Automotive Inc., the bankrupt maker of hybrid cars, will be sold at auction after a judge limited the amount of debt that lender Hybrid Tech Holdings LLC can trade for the company.

Hybrid can put only $25 million of the $168.5 million Fisker owes it toward an acquisition, U.S. Bankruptcy Judge Kevin Gross said Friday at a hearing in Wilmington, Del. Offering to forgive a company’s debt, instead of paying cash, at a bankruptcy auction is known as credit bidding.

“I’m not denying a right to credit bid,” Gross said. “I’m simply saying it should be capped at $25 million.”

The official committee of unsecured creditors on Dec. 30 proposed a sale process naming Wanxiang America Corp. as the “stalking-horse” bidder with a lead offer of $25.8 million, plus assumed liabilities. Wanxiang, a unit of China’s Wanxiang Group Corp., on Jan. 8 increased its offer by $10 million.

The auction could be held as soon as February, Sunni Beville, an attorney for the committee, said in an interview after the hearing Friday. Anaheim, Calif.-based Fisker’s assets include a closed General Motors factory in Wilmington.

The committee, which represents debt-holders with a lower repayment priority than Hybrid’s, has argued that unsecured creditors would benefit from an auction.

Hybrid will take part in the auction, Caroline Langdale, a company spokeswoman, said in an e-mailed statement.

‘Viable bid’

“We still feel Hybrid represents the most competitive and viable bid for Fisker’s future,” Langdale said.

Hybrid is controlled by Richard Li, son of Hong Kong’s richest man, Li Ka-Shing. Hybrid said it would be unfair and set a bad legal precedent if secured creditors couldn’t trade their debt for a company’s assets. Secured creditors are paid before unsecured creditors and typically have the right to bid at an auction using the full value of their debt.

Gross said he was making an exception because the circumstances were unusual. He said his decision shouldn’t be considered a precedent in other cases. He also said his ruling was based, in part, on the fact that any auction would include assets that may not be collateral for Hybrid’s loan.

Auction rules

Fisker will return to court Jan. 13 to present Gross with proposed rules for the auction and details about a loan from Wanxiang that would fund the defunct carmaker until the sale is complete.

The Wanxiang proposal required that the bankruptcy court limit Hybrid’s credit bid to $25 million, the price Hybrid paid the government for the loan.

Henrik Fisker, who founded the automaker in 2007, told Congress in April that safety recalls, a bankrupt battery supplier and shipments lost to Hurricane Sandy hurt the company’s finances. Wanxiang last year bought most of the assets of the battery supplier, A123 Systems Inc.

Fisker listed assets of as much as $500 million and debt of as much as $1 billion in its Chapter 11 petition filed Nov. 22. The company justified the fast pace of the case by claiming to have conducted an “extensive” marketing effort, along with federal officials, before filing for bankruptcy, according to court papers.

Missed payment

Fisker missed its first payment on the low-interest U.S. loan on April 22. It had drawn about $192 million from an initial loan commitment of $529 million from a program intended to spur production of alternative-energy vehicles. Fisker was cut off from the remaining money in 2011 after missing production milestones for its Karma luxury model.

In December, Hybrid increased its offer by adding $1 million in cash, agreeing to share proceeds from the sale of the Delaware plant and agreeing to pay the site’s real estate taxes, according to court papers.

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