Electric Car Battery Maker A123 Expects Debt Default

The Company expects to be in default under certain of its material debt agreements. The Company does not expect to timely pay the October Interest Payment due today, October 15, 2012, under the 2016 Notes which non-payment will result in a default under the indenture governing the 2016 Notes, $143,750,000 in aggregate principal amount of which are currently outstanding. Similarly, the Company does not intend to timely pay a 6% P&I Payment due today, October 15, 2012, under the 6% Notes, $2,759,118.69 in aggregate principal amount of which are currently outstanding, which non-payment will result in an event of default under the 6% Notes and will permit the holders of the 6% Notes to require them to be redeemed.  The failure to pay the October Interest Payment and the 6% P&I Payment will also result in events of default under the Loan Agreement, but those events of default are temporarily waived under the First Loan Consent and Waiver Agreement and Second Loan Consent and Waiver Agreement, respectively, as described in Item 1.01 of this Current Report on Form 8-K.
The Company is considering a broad set of strategic alternatives to address its liquidity constraints including one or more potential transactions and is preparing for all contingencies as part of that process.Out of Print's iPad Case – Manufactured by a Real Bookbinder.However, there is no assurance that the Company will be able to pursue a strategic alternative that will allow it to continue to operate its business as a going concern. The Company may not have sufficient cash to fund operations and may need to seek the protections provided under the U.S. Bankruptcy Code to, among other things, obtain access to new financing and facilitate one or more of the transactions it is contemplating. No assurance can be given that the Company will be able to avoid restructuring, reorganization, or a bankruptcy filing.
Hoping to kick-start an electric-vehicle battery industry, the U.S. provided $1.26 billion since 2009 to battery makers including Johnson Controls Inc, JCI +0.50% LG Chem Ltd. 051910.SE 0.00%, and Dow Koka DOW +0.85%m, a joint venture of Dow Chemical Co. and South Korea’s Kokam Co., to set up nine factories in four U.S. states. Most are producing far fewer batteries than originally expected. Ener1 Inc., another government-grant recipient, sought Chapter 11 bankruptcy restructuring and has since emerged.A123 was awarded $249 million in Department of Energy grants and has used about half so far to pay for some of the costs of building a factory in Livonia, Mich. It was among the earliest entrants in the field, opening its Michigan battery plant in 2010, and outlining plans for a second U.S. facility.