Lordstown Motors (NASDAQ: RIDE) has filed for Chapter 11 over the Foxconn issue among others. Our usual insistence upon a Chapter 11 filing is that the equity is going to go to zero. Because the usual reason for a Chapter 11 filing is that debts are greater than assets, therefore there's nothing left there to give the equity any value. However, we are willing to agree that sometimes this is not true. And not just in weird circumstances like Hertz, where the turnaround in the used car business meant it wasn't in fact bust at all.
As Lordstown says: “The Company enters Chapter 11 with significant cash on hand and is debt-free. “ Well, that should mean - even if it's only the cash balance - that there's the possibility of some recovery for the equity.
As to the actual business itself, we're not wholly sure there's much value in this: “Lordstown has filed motions with the Court seeking authority to commence a comprehensive marketing and sale process under section 363 of the U.S. Bankruptcy Code to realize the full value of its innovative Endurance vehicle and related assets. The Endurance is a fully homologated and certified, production-launched vehicle that can serve as a springboard for the right OEM or other strategic purchaser into the broader North American EV full-size truck market at a fraction of the cost and time it would take to develop a program from the ground-up. The Company is confident that a buyer could utilize the Endurance platform to create multiple EV variants and take the product to the next level.” Well, no, we're really not sure that that's going to have anything more than some nominal value. It's the factory to build such things which is valuable and that's exactly what they're arguing with Foxconn about.
Lordstown Motors stock price from NASDAQ
The other issue that's likely to be of some value is the legal case itself:It expects the restructuring will speed up the timeline for hearing its litigation against Foxconn (OTCPK:FXCOF). "The litigation details Foxconn's (OTCPK:FXCOF) fraud and willful failure to live up to its commercial and financial commitments to the company," Lordstown (RIDE) said in a statement. "Foxconn's actions led to material damage to the company as well as its future prospects." The lawsuit pertains to a partnership with Foxconn (OTCPK:FXCOF), under which Lordstown (RIDE) agreed to divest its Ohio manufacturing facility to the Taiwanese firm and form a joint vehicle development platform.”#
Now, how much value that suit will have - obviously, it has to be won first, no sure thing - and when it might arrive is another thing. But it's possible that there will be a new instrument which contains that claim.
Our guess at this is that some of the Lordstown assets will be saleable enough that there could be a cash return to stockholders, along with some part of that likely to be long running claim against Foxconn. The actual business itself we don't, we're afraid, rate.
Now, how much that's going to be worth per share we'd not even attempt to guess. But unlike most Chapter 11 filings we see we do think it likely that it's going to be a positive sum.
