In re Fisker Automotive Holdings, Inc.—Delaware District Court Refuses to Hear Distressed Investor’s Appeal of Order Limiting Right to Credit Bid

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On January 17, 2014, the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) entered an order in the Fisker Automotive (“Fisker”) chapter 11 bankruptcy cases limiting the ability of Fisker’s secured lender, Hybrid Tech Holdings, LLC (“Hybrid”), to credit bid at an auction for the sale of substantially all of Fisker’s assets. Hybrid immediately sought an appeal of the Bankruptcy Court’s decision, but on February 7, 2014, the United States District Court of the District of Delaware (the “District Court”) issued an opinion denying Hybrid’s Motion for Leave to Appeal, effectively ensuring that Hybrid would not be permitted to credit bid the full amount of its secured claim. In doing so, the District Court embraced the view that a bankruptcy court may deny a lender the right to credit bid if doing so will “foster a competitive bidding environment.”

Background -

When Fisker stopped manufacturing vehicles in July 2012, its capital structure consisted primarily of a $170 million secured loan held by the Department of Energy (DOE). After the parties failed to negotiate a restructuring, the DOE initiated a marketing process for the sale of its outstanding loan. The DOE retained Houlihan Lokey to run the loan sale process, which culminated in an active auction among several potential buyers. Hybrid won the auction with a bid of $25 million—acquiring the $170 million loan for approximately 15 cents on the dollar.

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