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Pew Law Center Blog
January 31, 2012 Lawrence 'D' Pew

Is Ener1’s Pre-Packaged Bankruptcy Stimulating Enough?

On January 26, two days after President Obama’s State of the Union Address, Ener1, Inc., another “green energy” recipient of $118.5 million in taxpayer stimulus dollars followed Solyndra into bankruptcy. The stimulus money was given to Ener1’s subsidiary, EnerDel, in the form of a grant from the U.S. Department of Energy. Because EnerDel was not joined with its parent company in bankruptcy, Ener1 insists the ARRA grant will not be affected.

If you are unfamiliar with Ener1, it is a player in the energy storage market. The company develops “compact, lithium-ion-powered energy storage solutions” for the transportation sector – that is, they primarily assemble batteries for electric cars (oh, that would be “advanced technology vehicles”). Vice President Biden visited the Greenfield, Indiana, Ener1 factory a year ago to the day the company filed for bankruptcy. To carry out President Obama’s plan to have one million electric vehicles on the road by 2015, Biden said people will have to be convinced “to take a chance, to invest in these vehicles.”

If You Build it They Will Come? Really?

As CEO Alex Sorokin explained, Ener1’s “business plan was impacted when demand for lithium-ion batteries slowed due to lower-than-expected adoption for electric passenger vehicles.” Sorokin went further, pointing his finger at the June 2011 bankruptcy of Think Global, a big customer of Ener1. Additionally, Sorokin pointed to “volatility in the debt and equity markets that further limited [Ener1’s] borrowing ability.” Ener1’s business model seemed to rely exclusively on a non-existent market. Most consumers cannot afford the luxury of purchasing expensive new electric vehicles simply to support a go-green-go agenda.U.S. consumers are buying fewer new cars mainly because “it’s the economy, stupid.”

Ener1 Restructuring Plan Highlights

With assets of $73.9 million and debts of $90.5 million, Ener1’s plan in the U.S. Bankruptcy Court for the Southern District of New York seeks to:

●  Extinguish all existing common stock, already delisted from the NASDAQ. What will these long-term debt holders get for their claims? A blend of cash, new term loan, and new common stock. No distributions will be made to current equity holders when the reorganization is over.

●  New preferred stock will be issued to the “provider of the post-petition and exit funding” — that would be Bzinfin SA, a Russian investment company.

●  Suppliers will be paid in the ordinary course for company obligations incurred after the Chapter 11 filing date.

●  Those suppliers who did business with Ener1 prior to the filing date either already settled or will be paid under the restructuring plan (perhaps cents on the dollar).

●  The plan includes another $81 million to “recapitalize the Company to support its long-term business objectives and strategic plan.” Although Ener1 asked the court to approve an initial $20 million from Bzinfin SA (the Russian source of the $81 million loan and exit financing). The court only approved $13.5 million in interim loans from Bzinfin to maintain Ener1’s day-to-day operations during reorganization.

Sorokin is very pleased with the continued support Ener1 has received from investor-lender Bzinfin SA stating:

“Their support demonstrates that our business partners have an appreciation for our future business opportunities in providing energy storage solutions for electric grid, transportation and industrial applications. We expect the new funding to provide ample liquidity for our subsidiaries to meet their ongoing obligations to employees, customers and suppliers.”

As the bankruptcy judge noted, Bzinfin SA will end up owning the majority interest in Ener1 when that debtor-in-possession exits bankruptcy. The parent company of EnerDel, the recipient of $118.5 million in taxpayer stimulus money, will be controlled by a Russian company.

Ener1 Pre-Packaged Bankruptcy Plan, Not Freeze-Dried

You may be wondering what Ener1 means with its reference to a pre-packaged reorganization plan. This company was able to prepare a Chapter 11 reorganization plan with the cooperation of its creditors. Before filing the petition, Ener1’s shareholders must have voted on the plan. By presenting the so-called pre-packaged bankruptcy plan to the court, the bankruptcy process may be expedited which could serve to help save the company money in professional legal and accounting fees.

Ener1 Brands and Subsidiaries

Subsidiaries of Ener1 include the following brands:  EnerDel, EnerFuel, NanoEner, Emerging Power, and Ener1 Korea. Although none of these entities joined in the Chapter 11 filing, each is monitoring relevant market conditions and will “make adjustments to the workforce as appropriate” according to Ener1.

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