By Tom Hals and Garima Goel
Oct 26 (Reuters) - Bankrupt battery maker A123 Systems Inc plans to ask for court approval for a loan from auto parts maker Wanxiang Group Corp, while Johnson Controls Inc said it would withdraw its prior loan commitment to A123.
A123, which filed for bankruptcy earlier this month, had an interim bankruptcy loan with auto parts supplier Johnson Controls. But the company revealed in a court filing on Friday that it reached agreement for a replacement loan from Wanxiang.
In a statement released late on Friday, Johnson Controls said it is withdrawing the debtor-in-possession (DIP) loan to avoid delays to the bankruptcy process.
Wanxiang's attorney had said last week that the Chinese company plans to fight Johnson Controls for the role of initial bidder.
"Johnson Controls has chosen not to be the debtor-in-possession lender during A123's bankruptcy process to avoid potential delays," Johnson Controls said in a statement.
However, Johnson Controls said that it will maintain its $125 million bid for A123's automotive assets as well as the stalking horse position.
Johnson Controls also said it plans to include A123's government business, including military contracts, to its bid.
A debtor-in-possession or DIP loan often gives the lender significant leverage over the bankrupt company, allowing the lender to demand asset sales and set timelines for conducting the bankruptcy.
In a separate disclosure earlier in the day, A123 had sought court approval for a loan from Wanxiang. The disclosure was part of an agenda for a hearing scheduled for Tuesday in the Delaware Bankruptcy Court in Wilmington.
"The debtors intend to file an emergency motion in advance of the hearing seeking approval of a replacement DIP facility with Wanxiang America Corp," A123 said in a court filing on Friday.
This could give the Chinese company an advantage over U.S. rival Johnson Controls in a takeover battle for A123.
Wanxiang has been pursuing A123 for months. The bankruptcy came after a $465 million rescue deal by the Chinese company unraveled after the U.S. battery maker was unable to meet some conditions of the agreement.
Michael Freitag, a spokesman for A123, and Bojan Guzina, a lawyer for Wanxiang, declined to comment on the disclosure.
A123, a maker of lithium-ion batteries used in hybrid and electric vehicles, had received a $249 million U.S. government grant in 2009 designed to boost the renewable energy industry.
However, the company declared bankruptcy amid a disappointing market for electric vehicles and after it had to recall battery packs made for Fisker Automotive, which made up 26 percent of A123's revenue in 2011.
Fisker on Friday objected to A123's plans to selling the company at an auction with an initial "stalking horse" bid from Johnson Controls, or JCI, for $125 million.
"The best interests of the estates, however, are not well served through a hasty and unfair sale process designed to ensure that JCI is the ultimate purchaser," Fisker said in its court filing.
It asked the court to extend bidding deadlines for 30 days.
Wanxiang would need approval from the Committee on Foreign Investment in the United States and the government of China to acquire A123.
Wanxiang's lawyer told the court earlier this month the Chinese company intended to present its own stalking horse proposal to the court next Tuesday, but that matter was postponed to Nov. 5, according to the agenda.
The case is A123 Systems Inc, Delaware Bankruptcy Court, No. 12-12859.