Filing Alert: #Fallbrook Technologies Files Chapter 11 Petition in Delaware

Texas-based Fallbrook Technologies has filed for chapter 11 protection. The committee formation meeting will take place on March 9, 2018 at 10:00 a.m. in Wilmington, Delaware. The formation notice is available here.

World Domination, One Gear At a Time

Fallbrook develops and manufactures the NuVinci continuously variable transmission systems. What is that, you ask? It makes stuff more efficient. So the company’s mission can be summed up as achieving world domination by creating a better mousetrap. Or as it says, setting the new global standard for managing mechanical and electro-mechanical power systems.

And it will do this by “transforming gears to (NuVinci) spheres.” That is, by using a set of rotating and tilting spheres between the input and output components of a transmission. If you have a degree in engineering, perhaps this brings something to mind. For the rest of us, the company has provided a helpful illustration.

Cool! Fallbrook’s system is now commercially available for bicycles and e-bikes. And, Fallbrook says, its technology has exciting applications in machinery, vehicles, and other equipment.

The company has two divisions.

  • Its Enviolo-branded bicycle division, which was formed to demonstrate mass market viability and to continue to develop the NuVinci technology.
  • Its licensing division, which provides NuVinci technology to “industry leaders” such as Allison Transmission, Dana Limited, TEAM Industries and Conti Temic microelectronics.

The Start-Up Business Encounters Liquidity Problems

The company landed in bankruptcy because of its “inability to meet operating expenses and satisfy debt obligations with current revenue streams.” Translation: Licensees are not yet selling products that utilize NuVinci, so hoped-for royalty income is not yet there. And revenue from its bicycle division is not enough to sustain the company.

Before filing for bankruptcy, Fallbrook says it “exhausted all other available courses of action, including a comprehensive marketing process for the Debtors’ assets, refinancing existing obligations, and negotiations with its noteholders.”

The Bankruptcy Plan

Those efforts, Fallbrook tells us, resulted in a restructuring support agreement that will de-leverage its balance sheet by allowing it to pay interest in kind, convert certain debts to equity, and obtain additional working capital.  The plan is supported by holders of the company’s senior secured notes, bridge notes, and subordinated convertible notes. The company hopes to obtain support from others in the coming weeks. Here is what the plan looks like:

  • Administrative Expense Claims: Paid in full in cash or other agreed treatment.
  • Priority Claims: Unimpaired.
  • Other Secured Claims: Secured claims other than existing notes and bridge notes to be paid in full in cash, unimpaired, reinstated or receive other agreed treatment.
  • Senior Secured Claims: Existing notes to be allowed in the amount of roughly $49.6 million, and bridge notes to be allowed amount of roughly $8.8 million. Existing notes and bridge notes to be cancelled, with holders participating in the new second lien facility and equity in the reorganized company.
  • Convertible Notes Claims and General Unsecured Claims: If the class of general unsecured claims votes to accept the plan, claimants will receive a pro rata share of 13% of the new common stock.
  • Existing Equity Interests: Extinguished.
  • Convenience Class: TBD

Notwithstanding its revenue struggles, Fallbrook says that it believes in its technology. Perhaps more importantly, it believes the total market for its technology is $150 billion.

Financing and Critical Vendor Status

To support its restructuring, Fallbrook has obtained a $8 million credit facility from with Kayne Credit Opportunities Fund (QP). Fallbrook has also asked for authority to pay critical vendors up to $1.25 million. And key vendor Tri Star has agreed to continue performing under a manufacturing and supply agreement in exchange for critical vendor status and other protections.

The Company’s Current Capital Structure

Secured Debt:

  • Existing notes: $49.6 million
  • Bridge notes: $8.8 million

Unsecured Debt:

  • Convertible notes: $15.3 million
  • Trade debt: $5.4 million

Case Information

The debtors are represented by Shearman & Sterling and Young Conaway Stargatt & Taylor. Roy Messing of Ankura Consulting is the CRO.

The case has been assigned to Judge Mary Walrath (case number 18-10384 (MFW)).

Mette K.

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