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February 2, 2023 – The Court hearing the Quanergy Systems case issued an order approving a $3.15mn (increased by $1.25mn from an initial $1.9mn bid) sale of substantially all of the Debtor’s assets to ROLISI, LLC ("ROLISI*" or the “Buyer”) [Docket No. 193, with the February 1, 2023 ROLISI, LLC asset purchase agreement (the “APA”) attached at Exhibit 1, this replacing an earlier January 30th version of the APA which is substantially identical except as to the revised purchase price].
At what was supposed to be a February 2nd sale hearing to confirm ROLISI's then $1.9mn bid (an auction having concluded on January 30th), Debtor for the counsel detailed a dynamic post-auction process that involving two parties with continued interest in purchasing the Debtor's assest, notably with each having an existing relationship with the Debtor.
According to Debtor's counsel, in a February 1st communication sent by back-up bidder Quanergy 3D ("Q3D," backed by board member Tianyue Yu, also the Debtor's co-founder and Chief Development Officer…and obvious insider) to the Debtor, Q3D stated that it was willing to top ROLISI's $1.9mn bid. ROLISI also has a connection with the Debtor (although the Court ultimately determined that ROLISI was not technically an insider**), with ROLISI providing that ROLISI board member Tamer Hassanein would have a non-controlling interest in the continuing company. Mr. Hassanein is a partner at VC firm Rising Tide which has had an equity interest in the Debtor since 2020.
*The APA lists Simon Vine of Yesod Capital as the Buyer's contact, with that entity noting: "Yesod provides individual residential and commercial property owners short to mid term equity financing with customized/creative loans for unique requirements." Mr Vine describes himself as "Former Head Of Investment Bank with very broad experience in crisis management, trading, structuring, new business development, IT & digitalization project management. Public speaker, author of many books [These all in Russian]." Mr Vine also notes that he was "Head of the Fixed Income and Currency Markets Division of [Mikhail Fridman's] Alfa Bank." Mr Vine filed a statement with the Court at Docket No. 182.
** This was curious. The sale order provides: "Neither the Buyer nor any of its current affiliates, officers, directors, managers, shareholders, members or any of their respective successors or assigns is an 'insider' of the Debtor...No common identity of directors, managers, controlling shareholders, or members exist between the Debtor and the Buyer. As set forth in the Perkins Declaration and Haesler Declaration, the Successful Bidder is a Florida limited liability company and currently has one owner. A member of the Debtor’s Board of Directors, Tamer Hassanein, may become a member of ROLISI prior to or following the Closing Date, and therefore, a future member of the Successful Bidder is an 'insider' of the Debtor, as such term is defined in section 101(31) of the Bankruptcy Court." No mention of Rising Tide (16.5% as per proxy statement) or Mr. Hassanein's role (5.2% ownership as per proxy statement) at Rising Tide, was made at the hearing or noted in filings.
With that development, the sale hearing evolved into a hearing as to whether the auction should be re-opened to consider the Q3D bid, with counsel for each of ROLISI and Q3D predicatbly that the auction remain closed (ROLISI) or re-opened (Q3D), before the Court sided with the Debtor and the Debtor's creditors' committee who had argued that the auction should be re-opened.
In re-opening the auction, the Court noted that it was not doing so because of the receipt of a higher post-auction bid, but because both sides had existing insider relationships in what had otherwise been an expedited sale process for a debtor otherwise running out of cash.
After the resumed auction, ROLISI was (again) name the winning bidder, albeit at the higher purchase price of $3.15mn. In what ended up being a tearful statement to the Court, Ms. Yu asserted that she respected the outcome and stood ready to step in should the ROLISI transaction stumble (although ROLISI's payment was apparently already on its way to the cash-starved Debtor as she spoke).
Updated Key Terms of the APA:
- Seller: Quanergy Systems, Inc., a Delaware corporation
- Buyer: ROLISI, LLC, a Florida limited liability company
- Revised Purchase Price: $3,150,000.00 (the “Closing Cash Consideration”), plus (ii) the assumption of the Assumed Liabilities (including, for the avoidance of doubt, the amount of all Cure Costs).
On December 13, 2022, Quanergy Systems Inc. (NYSE: QNGY; “Quanergy” or the “Debtor”) filed for Chapter 11 protection noting estimated assets between $10.0mn and $50.0mn and estimated liabilities between $10.0mn and $50.0mn. At filing, the Debtor, “a Silicon Valley-based technology company that develops LiDAR (Light Detection and Ranging) sensors and related technology,” cited a weak LiDAR market, supply chain issues, Covid and IP-related litigation as driving it into bankruptcy; with those factors compounded by what turned out to be overly optimistic assessments as to capital needs as they came out of a 2021 reverse SPAC merger.
On January 30th, further to a December 21st bidding procedures order [Docket No. 59] and an auction concluded on January 30th, the Debtors notified the Court that ROLISI, LLC had been designated as the successful bidder in a sale of substantially all of the Debtor’s assets [Docket No. 179, with the ROLISI APA, detailing a $1.9mn cash bid, filed at Docket No. 180]. Quanergy 3D, LLC was designated as the "Next-Highest Bidder."
[As reported prior to the auction] As it stands, the Debtors, who have not sourced debtor-in-possession ("DIP") financing, are compelled to re-boot a failed prepetition, out-of-court sales effort on an expedited basis, the need for speed necessitated by lack of liquidity at a company still saddled with a "significant cash burn." Even with the efforts of investment banker Raymond James & Associates, Inc., "prepetition marketing process with respect to both a sale to a strategic partner or a comprehensive financing transaction was unsuccessful."
So what are the sale prospects for a company with inadequate cash, lackluster prepetition sales interest and a short runway? The Debtors are hoping that, in addition to the ability to jettison unwanted contracts as part of an in-Court sales process (the Debtors have $25.0mn of trade payables), the recently settled Velodyne litigation (with the Velodyne settlement promptly classified as a general unsecured claim) and what appears to be consolidation in the LiDARS market* may give them a shot at succeeding where they had so recently failed. The Debtors provide:
"The Debtor believes marketing its assets with the benefits afforded to a buyer under section 363 of the Bankruptcy Code will provide the Debtor with certain advantages to effectuating a sale transaction or transactions in chapter 11, that were not available to the Debtor during the prepetition marketing process. In addition, certain developments in the LiDAR market, including the pending Ouster/Velodyne merger and the pending asset sale transaction between Ibeo Automotive Systems GmbH and MicroVision, Inc., may signal the start of a wave of consolidation activity in the LiDAR sector."
* The argument as to benefitting from potential consolidation is somewhat undercut by the Debtors assertion that part of what pushed them into bankruptcy were missed opprtunities in respect of a possible M&A transaction: "Furthermore, on November 7, 2022, Ouster, Inc. ('Ouster') and Velodyne LiDAR USA Inc. ('Velodyne') announced plans to merge in an all-stock transaction. The announcement of the proposed merger made it unlikely that either Ouster or Velodyne could become acquirers of the Debtor in the near-term, because the companies had chosen a merger partner with products and technologies that are competitive to those of the Debtor and the companies would be preoccupied working to complete the merger, so would be less likely to engage in acquisition discussions with the Debtor."
The Bidding Procedures Motion
The motion [Docket No. 12] states, “The Debtor commenced the Chapter 11 Case in the wake of a liquidity crisis with the goal of pursuing a value-maximizing sale of all or substantially all of the Assets and an orderly wind-down of its business. As discussed more fully in the First Day Declaration and the Richards Declaration, prior to the Petition Date, the Debtor experienced a rapidly declining cash position due to the challenging equity markets in the Light Detection and Ranging (‘LiDAR’) sector that impacted the Company’s stock price and access to its equity line of credit from Global Emerging Markets Group (‘GEM’), and the significant cash burn required to fund its operations. Moreover, as a result of the Debtor’s stock price falling precipitously since the Business Combination, and delisting procedures commenced by the New York Stock Exchange (‘NYSE’) that followed, the Debtor’s access to capital has been significantly limited, which has directly contributed to the Debtor filing this Chapter 11 Case.
Confronted with growing liquidity constraints, the Debtor determined, in consultation with Raymond James & Associates, Inc. (‘Raymond James’), its investment banker, and the Debtor’s other advisors, that an expedited sale process under chapter 11 of the Bankruptcy Code is the best and only path forward to ensuring that the Debtor has sufficient liquidity to consummate a sale transaction aimed at maximizing value for the Debtor’s estate and its stakeholders. The Debtor believes marketing its assets with the benefits afforded to a buyer under section 363 of the Bankruptcy Code will provide the Debtor with certain advantages to effectuating a sale transaction or transactions in chapter 11, that were not available to the Debtor during the prepetition marketing process. In addition, certain developments in the LiDAR market, including the pending Ouster/Velodyne merger and the pending asset sale transaction between Ibeo Automotive Systems GmbH and MicroVision, Inc., may signal the start of a wave of consolidation activity in the LiDAR sector.
Accordingly, the Debtor files this Motion to approve the Bidding Procedures while simultaneously working to identify a Stalking Horse Bidder for the sale of all or substantially all of the Debtor’s U.S. assets in an effort to create a bid floor. This effort is aimed at culminating in a productive Auction, where interested parties will be given the opportunity to bid on all or substantially all of the Debtor’s Assets or a subset of the Assets. The Bidding Procedures proposed by this Motion will ensure that the Debtor’s marketing and sale process is conducted openly and in a manner that will encourage bidders to submit bids to best maximize the value of the Assets while simultaneously reserving the Debtor’s right to designate the Stalking Horse Bidder. The Debtor expects that the postpetition sale and marketing process will build upon the prepetition marketing process overseen by Raymond James.”
The Perkins Declaration [Docket No. 2] provides: "the Debtor’s prepetition marketing process with respect to both a sale to a strategic partner or a comprehensive financing transaction was unsuccessful leading up to the Petition Date. The Debtor, however, believes that a timely marketing and sale process in Chapter 11 that includes broader outreach to potential purchasers, including those interested in purchasing individual assets, in addition to a going concern sale, would be value-maximizing…
In late August, the Debtor, with the assistance of Raymond James, began outreach to potential counterparties for a going-concern sale. Raymond James’ outreach focused on parties that would be a strategic fit for the Debtor, including other LiDAR providers and also other prospects that could potentially leverage the Debtors sensors and software in other markets. The Debtor’s prepetition marketing process included outreach to 36 prospective buyers for a going-concern transaction, twenty-seven (27) of which Raymond James held preliminary diligence calls with to review the opportunity and answer questions. [Eight (8)] parties entered into non-disclosure agreements with the Debtor. No party submitted an actionable proposal."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Perkins Declaration), Lawrence Perkins, the Debtors’ CRO commented: “In early 2022, the Debtor became publicly traded on the New York Stock Exchange through a special purpose acquisition company transaction, whereby the Debtor secured a $125 million equity line of credit and closed the Business Combination (defined below) with approximately $30 million of cash on its balance sheet. Although the Debtor anticipated sufficient liquidity in the near term following the Business Combination, a decline in investor interest in the LiDAR sector, as well as general macroeconomic trends during the same time period, caused a selloff of the Debtor’s and other LiDAR industry stocks. By June 1, 2022, the Debtor’s market capitalization declined to approximately $48 million, reflected by a stock price of approximately $0.52 per share. This decline limited the Debtor’s access to its equity line of credit or other sources of equity or equity-linked financing offerings, while the Debtor’s operating expenses totaled approximately $4 million per month."
Perkins continues: "Following the Business Combination [ie the reverse SPAC merger], despite operating performance in-line with expectations, the Debtor’s capital structure proved insufficient to fund ongoing operational needs due to the challenging equity markets in the LiDAR sector, which impacted the Company’s stock price and access to its equity line of credit from GEM. For example, in the Debtor’s peer group, which includes eight (8) other publicly traded LiDAR providers, share price is down 69% over the last 12 months. As…a result of the Debtor’s stock price falling precipitously since the Business Combination, and delisting procedures commenced by the NYSE that followed, the Debtor’s access to capital was significantly impaired, which directly contributed to the Debtor filing this Chapter 11 Case.
Leading up to the Petition Date, the Debtor also faced certain operational challenges, including supply chain issues related to the COVID-19 pandemic. While the supply chain challenges have started to improve in the recent past, certain component parts and alternative parts have remained difficult or more costly for the Debtor to procure, which has impacted revenue and gross margins through 2022.
The Debtor also operates in a challenging commercial environment. The LiDAR market generally faces challenges as a new, early-stage technology that requires significant capital to scale. Most companies in the LiDAR market, including the Debtor, have a high-cost structure and low revenue base as LiDAR technology continues to be developed and improved. The Debtor, therefore, requires significant cash and ample financing for its operations.
The Debtor also faced challenges prepetition resulting from litigation between the Debtor and Velodyne LiDAR USA Inc. ('Velodyne'), which was a significant factor contributing to the lack of interest from potential purchasers in the Debtor’s prepetition marketing and sale process. The litigation, which was costly to defend and a distraction for management, has recently been resolved, providing more certainty to the market with respect to certain of the Debtor’s intellectual property. The Debtor is hopeful that a postpetition marketing process will yield more interest as a result of this resolution."
As of the Petition Date, the Debtor has no funded secured debt and has estimated outstanding unsecured indebtedness, including trade payables, of approximately $25.0mn.
There is none, although the Debtor provides no detail as to prepetition efforts to find what would clearly be nice to have…with the absence of DIP financing otherwise driving the timing of a sales process which bore no fruit prepetition: "The Debtor enters Chapter 11 with approximately $9 million in cash on hand to fund this case and implement a postpetition sale process. Without any debtor in possession financing, the Debtor’s liquidity is constrained and will only permit funding a sale process on an expedited timeline that allows for a sale closing in early February. The sale timeline contemplated gives consideration to this liquidity constraint, the marketing efforts made prepetition, and the Debtor’s belief that conducting a sale and marketing process postpetition, which will allow the Debtor to sell its assets free and clear of any liabilities, best positions the Debtor to maximize value for its stakeholders."
About the Debtor
According to the Debtor: “Quanergy’s (OTC: QNGY) mission is to create powerful, affordable smart LiDAR solutions for IoT and automotive applications to enhance people’s experiences and safety. Through Quanergy’s smart LiDAR solutions, businesses can now leverage real-time, advanced 3D insights to transform their operations in a variety of industries including industrial automation, physical security, smart cities, smart spaces and much more. Quanergy solutions are deployed by nearly 400 customers across the globe.“
Corporate Structure Chart (includes non-debtors)
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