Faraday Future is working with ‘a bankruptcy legend’ to stave off collapse

The new electric vehicle company, Faraday Future, is restructuring to survive. The company announced a new agreement on Monday that could chart a way forward. The start-up has been without major financial support for months, it has not been able to recover hundreds of employees who are still on unpaid leave, and recently sold its own headquarters to generate cash. But their new path, say financial experts The Verge, resembles a bankruptcy outside the court.

The possible automaker announced that Birch Lake Associates, based in Chicago, will provide the company with new financing, or a short-term loan, of "up to $ 225 million." Of that total potential, $ 75 million will be granted in the form of "senior secured" debt financing, which means that the Birch Lake loan must be repaid before any other provider or contractors receive money owed by Faraday Future.

Many are also waiting. As of October, Faraday Future still owed "more than $ 59 million" to external providers, according to court documents discovered by The Verge . At least 11 have sued Faraday Future (for a total of nearly $ 80 million in late payments) since the startup fired and suspended hundreds of employees last October during a nasty split with its main financial sponsor, the Chinese conglomerate Evergrande.

To ease their pain, Faraday Future and Birch Lake say the rest of the $ 225 million ad will come in the form of a "seller's trust" of "up to $ 150 million." The EV startup says Birch Lake started this trust with an undisclosed amount of funding that will help Faraday Future pay "all amounts due for approximately 60 percent of FF's supplier base, including smaller suppliers. to those who are owed less than $ 20,000. "

Meanwhile, larger providers will have to swap claims in accordance with the press release, the debt owed for larger portions of the trust will be paid throughout 2019.

Seen together, these steps (including the dizzying language of the latter) explain the" equivalent to what could happen in bankruptcy, "according to Jared Ellias, associate professor of the Law School of UC Hastings in San Francisco. Frederick Tung, a professor at the Boston University Law School, agreed and called it "essentially a financial restructuring" in an email to The Verge .

Ellias says he is not surprised that Faraday Future is now on this path, because Birch Lake CEO Jack Butler "is a legend of bankruptcy." Butler co-founded the restructuring division at the international law firm Skadden Arps, and that's what Ellias says. "It's not surprising that a bankrupt person sees a bankruptcy solution for what was wrong" with Faraday Future.

Ellias also says that this extrajudicial restructuring is "a logical solution" considering Faraday Future's position, and that making it a step away from bankruptcy law could, in theory, save tens of millions of dollars in lawyers at the start. enrollment.

In return for "up to $ 225 million" in loans from Birch Lake, Faraday Future has offered all of its "assets and all of its income," according to new funding statements filed with the California secretary of state. That includes the 900 acres in Las Vegas, Nevada, where Faraday Future once planned to build a $ 1 billion factory. The start-up recently put that land on sale (with a sale price of $ 40 million), as The Verge reported for the first time in February. But a new document filed with the Clark County Recorder's Office shows that the Las Vegas land deed was transferred to Birch Lake on April 29.

Birch Lake's short-term loans are supposed to give Faraday Future the opportunity to "act sufficiently together" enough to "convince capital investors that the company will survive," says Tung. And Faraday Future plans to raise capital, according to Monday's announcement.

Based on a valuation of $ 1.25 billion of the company's intellectual property by the Investment bank Houlihan Lokey (which Ellias also points out is Faraday Future, known for its restructuring business, said it expects to raise the same amount ($ 1.25 billion) to advance the production of its first electric car. in internal meetings you need at least $ 500 million to start production, said the sources The Verge .

To raise so much money, says Ellias, Faraday Future would probably have to sell a large stake in the laying The question now is who will be bought, founder and CEO Jia Yueting owns at least 33 percent of Faraday Future, even that has been reluctant to sell its stake for fear of losing control of the company, several sources have previously said The Verge . In fact, when former Chief Financial Officer Stefan Krause tried to bankrupt the company to prevent it from collapsing in 2017, Jia refused and dismissed him for fear of losing control, sources said The Verge at that time.

Evergrande, the massive Chinese conglomerate that invested $ 800 million in Faraday Future at the end of 2017, still owns a 32 percent stake in Faraday Future, even after breaking with the start-up of EV at the end of last year . Cost $ 600 million to buy the share of Evergrande according to the documents presented in the Hong Kong Stock Exchange, although that price increases each year for five years, with a maximum payment of $ 1.05 billion if Jia waits until 2023. (Evergrande initially received 45 percent of Faraday Future in exchange for its investment in 2017. It is not clear what happened to the 13 percent difference when the conglomerate reduced its participation by the end of 2018. The remaining shares are held by the companies. employees.)

Faraday Future, founded in 2014, had almost 1,500 employees, many of whom were hired from companies such as Tesla , Apple and the major automobile manufacturers. His goal was to build an all-electric car called FF91 that was faster than a Tesla, and equipped with all kinds of high technology, for which he obtained hundreds of patents. The company still hopes to build the FF91 at a renovated tire factory in Hanford, California, and says it could deliver the car by 2020. It also recently announced its aspirations to build an electric minivan in China in association with a mobile gaming company.

But after the cash shortage of the separation with Evergrande, the start-up now has less than 400 people working on reduced payroll in the US. UU Through permission, according to a current employee. You have lost many key employees, too. Two of its three co-founders have resigned in the last year and a half, as have many of its top executives. The company also recently lost a number of employees who were crucial to the development of the GM EV1, considered the first mass-produced electric car, against the rival EV company, Rivian.

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