$95 million financing deal approved for GTAT

Company reports another loss in February, but may have a deal to sell some sapphire furnaces


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GT Advanced Technologies will seek about $95 million in financing from the very same bondholders who were left holding the bag when the Merrimack-based company filed for bankruptcy last October.

Meanwhile, the company reported losing $8.7 million in February and said it was at risk of losing several key employees, though it does seem to be closing in on the first sale of sapphire furnaces since cutting itself loose from its contract with Apple Inc. last year.

GTAT installed some 2,000 furnaces to produce sapphire for use in the technology giant’s mobile devices. But GTAT could not complete the work to Apple’s satisfaction and now it needs to sell those furnaces and others in order to return $439 million to Apple and other creditors, including bondholders.

But that troubled history didn’t stop bondholders from negotiating another deal with GTAT and supply it with debtor in possession financing.

Originally, GTAT was going to get $100 million from TPG Specialty Lending and TAO Finance 2 LLC, which had outbid bondholders back in February. But the bankruptcy court put off approving that deal, and during the delay the bondholders upped their bid.

GTAT signed with the bondholders on March 13, and despite some qualms voiced by both the bankruptcy trustee and the creditors committee, the judge approved the first part of financing on March 20 and a second part – allowing bondholders to solicit investors to buy the bonds – on April 2.

The bonds will carry an interest rate of 9.5 percent in cash and 3 percent in kind. Investors would have first dibs, should the venture fail, after Apple.

The infusion of capital would be used by GTAT to implement its business plan, which is to return to selling furnaces to other companies rather than attempt to make and sell material itself, as it had unsuccessfully tried to do for Apple.

GTAT also hopes to develop several new technologies to make the material production cheaper and more efficient.

‘Extremely frustrated’ customer

So far, the company has not been very successful financially.

According to its February operating report, released at the end of March, GTAT lost $8.7 million in February, bringing the total loss since the bankruptcy filing to $328 million.

The company reported $2.75 million in revenue, with $3 million for the cost of that revenue. Its next biggest expense – professional fees related to restructuring – was about $2.6 million.

In a March 27 filing, the professionals, mostly attorneys, asked for their first reimbursement, about $12 million. Some $4 million would go to Paul Hastings, GTAT’s lead attorney in the bankruptcy court. A hearing on the fees is scheduled to be held next week.

GTAT’s next two largest expenditures were administration and research and development ($2 million each). Losses related to the Apple deal – maintaining the facility down in Arizona and selling off those furnaces – were $876,000.

GTAT did say it was about to sell its first sapphire furnaces, but the need to get court approval had endangered the sale with an “extremely frustrated” customer who had “very limited exposure to the U.S. bankruptcy process.”

It’s important for the court to approve the deal quickly, said the filing, because the “transaction will further signal to GTAT’s stakeholders, third-party investors, and other potential customers that GTAT is a viable enterprise.”

The filing did not disclose the number of furnaces involved, or their sales price.

The company is also trying to hang on to its employees. It had previously asked for a special incentive deal to retain top executives by offering them bonus incentives, but the court denied that motion, which GTAT is appealing.

Since that decision, the company said in a March 13 filing it “has lost or is about to lose several critical employees whose departures GTAT believes will have a negative impact on GTAT’s ability to reorganize,” adding it is “extremely concerned about losing employees essential to its operations and restructuring efforts.”

The filing said the company is particularly interested in keeping one “key employee” who had an offer from another company.

The unidentified employee, who was not an insider, was one of the few “go to” employees dealing with many of the professionals during bankruptcy proceedings, the company said, and would be both difficult and expensive to replace quickly.

The employee agreed to stay if the court approved a 10 percent raise and retention bonus, to be paid after the company reorganized. The court agreed to that motion.

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