Creditors balking at GTAT-Apple deal

Investigation launched into sale of sapphire furnaces to pay off debt

Should GT Advanced Technologies sue tech giant Apple or settle with it? That is the question creditors are raising in a crucial, twice-delayed bankruptcy hearing, now scheduled for Monday. And if their preliminary objections are any guide, the answer could be to threaten litigation and hold out for a better deal.

The combined creditors committee and bondholders are owed around $600 million, which is more than Apple’s $439 million claim.

They filed a preliminary objection to GTAT’s proposed settlement with Apple, alleging that GTAT’s claim that Apple drove it into bankruptcy has some merit.

But that was before Apple disclosed more information, and before a creditor committee-scheduled deposition with Jeff Williams, Apple’s senior vice president of operations, to which Apple agreed to after the committee asked for a bankruptcy court order requiring it.

The creditors committee reserved the right to supplement their objection before the hearing, which was scheduled for Dec. 10 in New Hampshire and then postponed to Monday, Dec. 15. At NHBR deadline, no such supplement had been filed.

In its preliminary motion, creditors questioned whether the Merrimack company should drop its claims against the deep-pocketed technology giant so it could get back to its original business of selling equipment to make materials like sapphire for manufacturers rather then what it tried to do for Apple: producing the material itself.

GTAT built 2,600 sapphire furnaces to produce that material at a plant in Arizona, but, in what GTAT executive Dan Squiller wrote later, Apple gave GTAT “an onerous and massively one-sided deal,” which ultimately led to the New Hampshire company’s bankruptcy.

Now, under a proposed settlement, Apple would receive between $200,000 and $290,000 for each furnace it sells until GTAT pays off its debt.

In doing so, the deal would place Apple’s claim above the other creditors, including shareholders.

But, in agreeing to the settlement in October, GTAT contended that it would be worth it to legally tangle with Apple.

The creditors aren’t so sure, and they have launched an investigation into the matter, and so far Apple has supplied them with some 4,700 pages of documents.

“Information produced by Apple appears to lend support to the Debtors‘ general allegations that Apple,” wrote the creditors’ attorneys. “Given the Debtors‘ prior allegations, boilerplate recitals of the burdens and speculative nature of litigation is insufficient to justify approval of the Proposed Settlement.“

The creditors have other objections as well. They question whether the furnaces were really owned by the GT Advanced Equipment Holding LLC subsidiary set up by GTAT at Apple’s request.

If not, than Apple’s security interest in the furnace would be null and void, and the creditors could benefit from the sale of them, the creditors claim.

The creditors also echoed an objection spelled out in more detail by Sumitomo (Shi) Cyrogenics of America Inc., which is owed $1.2 million.

Sumitomo contends that GTAT’s assertion that the settlement with Apple would only use proceeds from the sale of furnaces to pay off Apple’s debt first is “false.” That’s because the agreement would require GTAT to pay off its debt with other funds should the furnaces fail to sell above Apple’s cut of $200,000 to $290,000 per unit.

That would enable Apple “to swallow large quantities of money that would otherwise be available to unsecured creditors,” Sumitomo attorney’s contends.

It would take 1,738 furnaces sold at Apple’s threshold price to pay off the debt, but Sumitomo questions whether GTAT would be able to sell the furnaces for that much. After all, hadn’t Apple insisted in court that the used furnaces didn’t produce enough usable material?

“These estates should not be subject to claims based upon second-guessing by Apple,” writes an attorney for the creditors.