Fisker has received approval from a bankruptcy judge to sell more than 3,000 Ocean SUVs to a car leasing company, a deal that could net the bankrupt EV startup up to $46.25 million. The approval of the sale means Fisker will move forward with the remainder of its bankruptcy proceedings as it continues to liquidate the remaining parts of its distressed business.
The judge’s decision, handed down at a hearing late Tuesday afternoon, came after Fisker and its legal team received only one major objection to the sale. The Department of Justice’s U.S. Trustee’s Office argued that Fisker’s lawyers and Chief Restructuring Officer John DiDonato didn’t do enough work to show they had properly shopped around the inventory to get the best deal. The trustee’s office also said Fisker hadn’t properly explained how it arrived at the valuation of the vehicles and was unhappy with the speed with which its lawyers tried to close the deal.
DiDonato responded to each point in more detail in a filing Tuesday morning. He explained that Fisker had been in contact with “hundreds of potential buyers,” including dealerships, rental car companies, taxi companies and participants in the ride-sharing and leasing industries, about its Ocean SUV inventory before filing for bankruptcy in mid-June.
But the results of that effort have been pretty dismal: The only solid lead Fisker found was American Leasing, the company from which he currently buys inventory.
After the bankruptcy filing, one unnamed automaker and one company that leases vehicles to ride-hailing drivers expressed interest in the vehicles, but DiDonato said the interest was short-lived. The committee of unsecured creditors, which was first disclosed last week, also found an interested buyer. DiDonato described the potential buyer as a competitor of American Lease, but noted that they withdrew their offer.
Given all this, Judge Brendan L. Shannon agreed that DiDonato and Fisker had done their best to find the highest bid possible. He called American Leasing a “functional purple unicorn” because the company is not only buying the vehicles, but also agreeing to wait until four pending recalls are resolved before putting them into service, doing the work in-house, and working with the newly formed Fisker Owners Association to provide spare parts and software support to more than 2,500 owners.
Shannon expressed gratitude to the U.S. Trustee’s Office for encouraging DiDonato to disclose more information, which he said helps build a stronger document of how Fisker got to where it is now, with American Leasing being its best and only option.
Fisker is set to receive about $14 million from the sale of about 1,000 Ocean SUVs to American Lease over the next few days, and another 500 vehicles are due to be delivered to American Lease next week, bringing in another $6 million.
The funds will be used to pay the remaining employees who are working on the recall, updating software and promoting continued vehicle sales.
The question of where the remaining money Fisker will receive from American Leasing will go remains a point of contention since the first hearing in June.
Fisker’s largest and only secured lender is Heights Capital Management, an affiliate of financial services firm Susquehanna International Group. Heights lent Fisker more than $500 million in 2023. Those loans were unsecured and convertible into Fisker stock. But when Fisker’s third-quarter financials were reported in late 2023, the company breached one of the contractual provisions in its agreement with Heights.
To cure this default, Fisker secured the outstanding balance due to Heights by pledged all of its assets as collateral, which Heights has repeatedly argued throughout the bankruptcy proceedings that this gives it priority in the sale of Fisker’s assets.
Chapter 7 Approaches
At Tuesday’s hearing, it was revealed that Heights plans to file a motion to convert its Chapter 11 bankruptcy to a Chapter 7 bankruptcy. The company, the U.S. Trustee, the Committee of Unsecured Creditors and other parties could negotiate with the company that Heights will not ask a judge to approve the motion until at least July 29.
Heights’ lawyers have made it clear they view the case as a liquidation. Scott Greisman, one of Heights’ lawyers, said Tuesday that this is “probably the most heralded Chapter 7 conversion in history.” He added that they want to liquidate Fisker’s assets as efficiently as possible without incurring the costs that a Chapter 11 proceeding would entail.
Attorneys for the Committee of Unsecured Creditors and the U.S. Trustee’s Office have challenged claims against Heights’ assets in multiple previous hearings, but those arguments have been largely cosmetic, because the priority for nearly all parties was getting approval for the fleet sale (and making sure the process was proper) so the company wouldn’t go bankrupt altogether.
But under a fateful 2023 asset-backed agreement, Heitz’s claims could extend to many of Fisker’s other assets beyond its remaining Ocean inventory. The company still has hundreds of millions of dollars’ worth of factory equipment in Austria (home to contract manufacturer Magna’s facilities). Fisker Inc., the legal entity that oversaw that part of the business, is in bankruptcy proceedings.
That’s apparently creating tension. Fisker Austria wanted to include the vehicles in its bankruptcy proceedings. DiDonato said he had to negotiate with Fisker Austria to include the 118 Oceans at the factory and 480 Oceans in a nearby port in Belgium in the sale to American Lease. That included negotiations with the bankruptcy administrator and with Gita Gupta Fisker, Fisker’s founder, CFO and COO.
Linda Richenderfer, an attorney representing the U.S. Trustee’s office, said the matter was “particularly disturbing” given the fiduciary duties Gupta Fisker owes to parent company Fisker Corp. Gupta Fisker and her husband, founder and CEO Henrik Fisker, still work for the company.
It also emerged Tuesday that Heights has filed a $1 billion claim for assets in the Fisker Austria lawsuit.
Once vehicle sales begin to flow to American Leasing, the companies will turn their attention to the next hearings, scheduled for July 22 and July 29.
“It’s important that (Fisker) and the (unsecured creditors) committee are not hamstrung by questionable secured creditors,” Doug Manal, an attorney for the committee, said Tuesday. “We’re doing our homework, but I think it’s important that they’re given the time, the opportunity to see if they can come to an agreement and make progress by the 29th. They just need time.”
