This past Thursday the bad news coming out of Ener1 seemed to culminate in the filing of a Chapter 11 bankruptcy petition in the United States Bankruptcy Court in the Southern District of New York. The news about Ener1 has been bad for a while: The insolvency of a major customer, restated earnings, loss of senior management, delisting from the NASDAQ, and bridge loans bridging to who knows what have been weighing heavily on the industry for months. Many had been expecting the worst.
What was announced on Thursday was, however, not the worst (unless you happened to be a common stockholder of Ener1) and may even be grounds for some optimism. The filing on Thursday was a “prepack”, indicating that the major creditors of Ener1 have gotten together and agreed on a plan for Ener1 going forward. Those creditors, including Liberty Harbor Special Investments of New York, Itochu Corp. of Tokyo and Goldman Sach’s Palmetto State Credit Union of Florida, will exchange their debt for all of the stock of Ener1. Trade creditors and employees will be paid in full. Operations at EnerDel in Indianapolis will continue. And most important, and most intriguingly, $81 million of new money will be invested in Ener1, according to the company’s press release.
The future, or at least the near future, of Ener1, therefore, looks far different than that of Solyndra following its bankruptcy. Operations at EnerDel will continue. The technology and know-how that the $110 million DOE stimulus grants funded appears to remain intact. The market has not rejected that technology. In fact, once Ener1’s balance sheet is cleaned up, it appears that the market will be willing to invest another $81 million in it.
As I wrote at the time of the Solyndra bankruptcy, the failure of a company is not the same thing as the failure of a technology-based business. The losers in the Ener1 bankruptcy are those who invested in the common stock of Ener1. Their loss is unfortunate, but hardly novel among investors who buy high risk-high reward technology stocks. Their loss is of no consequence to U.S. taxpayers, whose $110 million grant was never intended to benefit the stockholders of Ener1, but rather was intended to support the development of technology and of a base of knowledge and experience in advanced batteries in the United States. By all accounts that technology and knowledge base appears secure and about to be doubled-down upon by $81 million of new investment. This is no failure.