January 30, 2012, 12:18 AM EST
By Phil Milford and Dawn McCarty
(Updates with Energy Department comment in fifth paragraph and shares in 18th paragraph.)
Jan. 26 (Bloomberg) — Ener1 Inc., the owner of a company that received a $118 million U.S. Energy Department grant to make electric-car batteries, filed for bankruptcy protection after defaulting on bond debt amid heavy competition from Asia.
The company listed assets of $73.9 million and debt of $90.5 million as of Dec. 31 in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. Ener1 has been affected by competing battery developers in China and South Korea, “which generally have a lower cost manufacturing base” and lower labor and raw material costs, interim Chief Executive Officer Alex Sorokin said in the petition.
Ener1, based in New York, makes lithium-ion batteries for plug-in electric cars, which were scrutinized by federal auto- safety officials after a General Motors Co. Chevrolet Volt caught fire, people familiar with the probe said in November. A two-month federal safety investigation cleared the Volt of danger, and GM is beginning a marketing effort to tout the car as safe and innovative.
Under President Barack Obama’s economic stimulus package, the Energy Department awarded grants in an attempt to create a U.S. electric-car industry. Ener1’s EnerDel unit, based in Indianapolis, was the grant recipient and has received about $55 million of its grant so far.
“While it’s unfortunate that Ener1, the parent company, has entered a restructuring process,” the investment of “private capital demonstrates that the technology has merit,” Jen Stutsman, a spokeswoman for the Energy Department, said in an e-mail. “The restructuring is not expected to impact EnerDel’s operations and the company has made clear that they do not expect to reduce employment at the site.”
Ener1’s grant application received bipartisan support from Indiana lawmakers, and the company got a $6.5 million Energy Department advanced-battery grant and a $4 million Defense Department research and development contract under the George W. Bush administration.
Ener1’s bankruptcy follows the failure of at least two U.S. government-backed renewable energy companies. Solar panel maker Solyndra LLC and energy storage company Beacon Power Corp. filed for bankruptcy after receiving government loan guarantees.
Beacon, based in Tyngsboro, Massachusetts, sought Chapter 11 protection on Oct. 30 in Delaware, listing assets of $72 million and debt totaling $47 million, including $39.1 million owed on a government-guaranteed loan. Beacon built a $69 million facility with 20 megawatts of balancing capacity in Stephentown, New York, funded mostly by a U.S. Energy Department loan. The company is set to auction assets next month.
Solyndra, which received $535 million in government loan guarantees, is proceeding with court-approved auctions of its core assets after failing to draw any offers to continue operating the company.
Solyndra, based in Fremont, California, sought Chapter 11 protection Sept. 6. Two days later its offices were raided by the Federal Bureau of Investigation, and it faces a probe by Republicans in Congress over the federal loan guarantee it used to build a $733 million factory. The solar-panel maker listed about $854.1 million in assets and about $867.1 million in debt in court papers filed Oct. 31.
Republicans also have questioned whether political favoritism may have played a role in awarding the government loan guarantee because of Solyndra’s ties to an Obama fundraiser.
“Payoffs on these public investments don’t always come right away,” Obama said in his State of the Union speech on Jan. 24. “Some technologies don’t pan out; some companies fail. But I will not walk away from the promise of clean energy.”
Obama added that he would not “cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.”
Among Ener1’s largest unsecured creditors are Liberty Harbor Special Investments of New York, holders of $39.4 million in senior notes; Itochu Corp. of Tokyo, holders of $10.2 million in senior convertible notes; and Goldman Sachs Palmetto State Credit Union of Florida, holders of $5.63 million in senior notes, according to court papers.
Ener1 expects to complete the restructuring process in about 45 days. The company filed a reorganization plan, which was accepted by the required majorities of creditors, and supporting documents with its Chapter 11 petition.
Under the plan, Ener1 may obtain as much as $81 million of new capital and reduce existing debt while maintaining operations, according to court papers. None of Ener1’s foreign or domestic subsidiaries sought protection.
Claims of all unsecured creditors will be paid in full under the plan, Ener1 said. All existing common stock will be canceled and new preferred stock will be issued to the provider of funding for the bankruptcy case. Holders of long-term debt will exchange their claims for cash, a new term loan and new common stock, court papers show.
Ener1 fell 73 percent to 2.6 cents in over-the-counter trading at 3:11 p.m. in New York.
Reed Smith LLP is Ener1’s legal adviser and its financial adviser is Houlihan Lokey Capital Inc.
The case is In re Ener1 Inc., 12-10299, U.S. Bankruptcy Court, Eastern District of New York (Manhattan).
–With assistance from Angela Greiling Keane in Washington, Jeff Green in Southfield, Michigan and Michael Bathon in Wilmington, Delaware. Editors: John Pickering, Stephen Farr
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