Bankrupt Lordstown Motors proposes zero payment for Foxconn shares

Nu Ride

05/09/2023 22:24

By Dietrich Knauth
       NEW YORK, Sept 5 (Reuters) - Bankrupt electric vehicle
manufacturer Lordstown Motors has proposed to pay nothing for
Taiwan's Foxconn's preferred equity shares, saying it will
prioritize other shareholders if an ongoing sales effort
generates enough cash to repay other debts.
    Lordstown Motors, named for the Ohio town where it is based,
filed a Chapter 11 plan Friday in Delaware bankruptcy court,
outlining how it intends to distribute proceeds from an ongoing
effort to sell its assets. Lordstown's Chapter 11 plan warned
that the value of its assets is "necessarily speculative" at
this stage in the bankruptcy and "could potentially be zero." 
    Lordstown has set a Sept. 8 deadline for bids, with a Sept.
19 auction to follow. 
    The company's shareholders would only be paid after its
creditors and Lordstown's Chapter 11 plan did not include an
estimate of how much creditors are owed. Lordstown reported in
earlier court filings that it owed about $20 million to 30 trade
vendors, and recently agreed to pay $40 million to settle a
trade secrets lawsuit filed by rival automaker Karma. 
    Even if the sale generates enough money for a shareholder
payout, Lordstown proposed to pay nothing to the 300,000
preferred equity shares held by its estranged former business
partner Foxconn. 
    A lawyer for Foxconn did not immediately respond to a
request for comment.
    Foxconn, formally called Hon Hai Precision Industry
 2317.TW  and best known for assembling Apple's  AAPL.O 
iPhones, purchased Lordstown's manufacturing facility as part of
its push into the electric vehicle market. 
    Lordstown sued Foxconn for failing to honor an agreement to
invest $170 million in its electric truck business, and for
engaging in a pattern of delays that undermined Lordstown's
operations, as part of its bankruptcy filing in June.
    Lordstown alleged that Foxconn purchased only $30 million of
the $100 million in preferred equity shares contemplated by the
disputed investment agreement. Foxconn also purchased $22.7
million of Lordstown's common shares, owning about 8.4% of the
company's equity, according to court documents. 
    Foxconn has disputed Lordstown's "flawed" interpretation of
the investment agreement in its bankruptcy court filings, saying
that it had "rightfully refused to fund additional capital into
Lordstown's failing business." Foxconn had asked a U.S.
bankruptcy judge to dismiss Lordstown's bankruptcy, a request
that the judge denied on Aug. 28. 
    Lordstown, once valued at $5.3 billion, manufactured just 80
electric trucks before shutting down its operations. 

 (Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and
Timothy Gardner)
 ((Dietrich.Knauth@thomsonreuters.com;))