A123 Systems Inc. (Nasdaq: AONE) has become the latest alternative-energy company with funding from the U.S. government to seek bankruptcy protection.

The filing comes the day of a presidential debate before the 2012 election. At the Oct. 3 debate, former Governor Mitt Romney (R-Mass.) alleged President Barack Obama picked the “losers” in terms of alternative energy companies to fund – such as solar panel maker Solyndra LLC, which had a $535 million loan from the U.S. Federal Financing Bank and sought bankruptcy protection on Sept. 6, 2011.

A123, which filed for Chapter 11 bankruptcy protection on Oct. 16, plans to sell its automotive operations, including two factories in Michigan, for $125 million.

Johnson Controls Inc. (NYSE: JCI) has entered into an agreement to buy the assets.

Johnson will also offer the company $72.5 million in debtor-in-possession financing so that it can continue operations during the bankruptcy case. The DIP will have to be approved by the bankruptcy court.

A123 makes lithium-ion batteries that power electric cars.

Before filing for Chapter 11, the company had come to an agreement with Chinese auto parts maker Wanxiang Group Corp. for a $465 million investment. The investment included a $25 million credit extension that A123 was set to receive in August.

Wangxiang agreed to waive two events of default on Oct. 12, according to Securities and Exchange Commission filings, from two different notes that the company was supposed to make payments on.

In an earlier filing from Aug. 9, the debtor admitted that it had substantial doubt about continuing as a going concern because it expected negative operation cash flows to continue. Additionally, as a condition to some of its notes, A123 was required to have a certain amount of cash on hand, and it expected it wouldn’t have enough, documents show. A123 had about $857 million in debt at the time of that filing.

The company sought bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware in Wilmington.

The company had received a $249 million grant from the U.S. government after the U.S. Department of Energy put aside about $90 billion for clean-energy programs through a stimulus package. Energy companies Solyndra, Beacon Power Corp. and Abound Solar also received government funds and sought bankruptcy protection.

Latham & Watkins LLP and Richards Layton & Finger are serving as legal counsel, Lazard is serving as financial adviser and Alvarez & Marsal is serving as A123’s restructuring adviser. 

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