Shares of Fisker (OTCMKTS:FSRNQ) stock are down by another 10% today, bringing the bankrupt company’s year-to-date loss to 99.78%.
Now, the big question remains: who will be able to receive the proceeds from a liquidation? Heights Capital Management, Fisker’s sole secured lender, believes that it should have priority. The firm alleges that Fisker owes it $180 million.
In 2023, Heights provided Fisker with $500 million in exchange for convertible notes that were not secured with collateral. However, the notes’ terms were violated after Fisker missed the deadline for filing its third-quarter earnings. Fisker noted that it would pledge all of its assets to Heights, prioritizing the lender.
Now, Heights is advocating for Fisker to convert its bankruptcy case to a Chapter 7 from a Chapter 11.
Fisker Stock: Heights Capital Seeks a Conversion to Chapter 7 Bankruptcy
A Chapter 7 bankruptcy would allow Fisker to liquidate its assets and provide Heights with payment. It would also likely mean the end of Fisker. Meanwhile, a Chapter 11 bankruptcy provides Fisker with a greater chance of survival and would allow Fisker to continue operating under court supervision with the goal of reorganization.
Heights believes that a Chapter 7 bankruptcy would allow it to get paid faster while providing savings in liquidation costs. However, Fisker wants to continue under a Chapter 11 process.
“The startup’s lawyers have argued Chapter 7 would make it difficult to finish preparing Fisker’s remaining vehicles to be sold as it could basically shut down the business and hand oversight of the case to a trustee,” wrote TechCrunch.
DOJ and NHTSA Want Fisker to Go Chapter 11
The Department of Justice (DOJ) and the National Highway Traffic Safety Administration (NHTSA) have sided with Fisker. The DOJ has argued that a Chapter 7 bankruptcy could harm consumers with recalled Ocean vehicles, as it wouldn’t allow Fisker to continue its operations. As of last week, Fisker had fixed about 1,400 of the over 3,000 vehicles that it is trying to sell for discounted prices.
Last Sunday, Fisker and Heights agreed to spend the next three weeks to decide on a settlement concerning the liquidation of assets. A successful settlement would allow the bankruptcy to continue as Chapter 11, while a lack of agreement could send the case to Chapter 7.
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On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
