GT Advanced Technologies unveils reorganization proposal
Bondholders, large creditors to gain ownership, shareholders would get nothing
Abandoning most of its 2,000 sapphire-making furnaces housed in an Apple-owned factory in Arizona, GT Advanced Technologies revealed a plan to emerge from bankruptcy in March 2016.
Under the plan, most creditors would receive only a small amount of stock in a reorganized company, with current senior management remaining in place. Instead, most of the company would be owned primarily by a group of investors made up mostly of bondholders and large creditors.
The reorganization would only occur if GTAT still has $27.5 million in cash on the March 7 closing – and if the bankruptcy court approves the plan.
GTAT said it would submit more details about the plan on Dec. 21.
The Merrimack-based advanced materials equipment company, has managed to sell 567 of those sapphire furnaces for $27.5 million, but it canceled a planned Dec. 2 auction, which was scheduled to sell off the rest.
That means that all but 364 furnaces – which GTAT will retain – will now be owned by Apple, which in turn has agreed to scrap the furnaces and split the proceeds with GTAT.
GTAT was given until Jan. 31 to pack up any furnaces it doesn’t sell and leave the Mesa, Ariz. facility.
GTAT equipped the facility two years ago, after agreeing to provide Apple with sapphire for use in its mobile devices, but it could not make enough quality material to the tech giant’s satisfaction.
Facing a debt of $1.3 billion, the company filed for Chapter 11 reorganization in October 2014, ending the operation and promising to pay back Apple the $449 million it advanced from the proceeds of the furnaces.
But GTAT couldn’t sell any of the furnaces and began rapidly losing money. Though it did receive $95 million in debtor-in-possession financing over the summer, it continued to bleed cash.
According to its latest statement, GTAT lost $6.5 million in October and had $99 million in the bank.
GTAT and Apple reached a new deal on Nov. 2. Apple would forget about GTAT’s debt and split the proceeds from the sale of the furnaces, even as scrap metal, scheduling an auction on Nov. 22-23.
But that auction was postponed, and the next day, GTAT signed an agreement to sell 567 furnaces for $26.6 million to a Hong Kong company called Vast Billion Development Ltd. The bankruptcy court approved the sale Dec. 1, the day before the next scheduled auction.
Before that, GTAT revealed that it had an offer of $80 million of exit financing at 9 percent interest offered by a group of investors consisting of bondholders and large creditors. GTAT would pay off $45 million of the $95 million it owed in debtor-in-possessor financing, plus fees of up to $2.4 million.
The new lenders providing the exiting financing would receive 5 percent of that loan (roughly $4 million) plus expenses and 86.8 percent of the stock in a newly emerged GTAT.
The rest of the creditors and original bondholders – with more than 1,000 claims totaling more than $1.18 billion –
would get the other 13.2 percent of the shares in the new company. They might also get some cash, but only if GTAT has more than $40 million in the bank in March.
But first dibs go to the professionals in the bankruptcy process – primarily lawyers – who are seeking another $10 million for their services, on top of the $23 million already granted by the court.
The new company will keep David Keck as its CEO, Raja Bal as its chief financial officer and Hoil Kim as vice president and general counsel. Bal, Kim and former CEO Tom Gutierrez, who resigned earlier this year, are targets (along with Apple, but not GTAT) in a class action securities fraud suit alleging that the defendants misled shareholders about the financial health of the company before bankruptcy.
Keck was not named in the suit.
Also under the reorganization plan, GTAT’s old shareholders would receive nothing if GTAT emerges from bankruptcy. The bankruptcy court rebuffed another attempt to form an equity committee to represent shareholders.
GTAT stock, once traded on the NASDAQ exchange, is selling for about 13 cents a share on the pink sheets. It had traded for nearly $20 a share in the summer of 2014 before the bankruptcy filing.