GT Advanced Technologies receives $95 million loan

Federal judge eases back conditions after lenders’ threat

GT Advanced Technologies announced today that it closed on a $95 million loan, despite a threat by lenders to pull out only five days prior.

The threat apparently caused a federal bankruptcy judge to back off some of the conditions he had originally put in the order approving debtor-in-possession financing, which is intended to help the Merrimack company emerge from Chapter 11 reorganization filed in October, after GTAT’s disastrous deal with Apple Inc. fell apart.

"The DIP loan gives us access to needed capital to continue to operate the company as we pursue near-term revenue opportunities and meet the obligations required as part of our Chapter 11 filing,” said Tom Gutierrez, GTAT’s president and CEO.

The company, which has lost $374 million since the filing, is down to $52 million cash and said that it would run out of money in October. Without the promise of such financing, GTAT argued no one would buy its furnaces, most of which now sit idle in Apple’s Arizona plant. Such furnace sales are necessary to pay off GTAT’s $439 million debt to Apple.

GTAT originally built the furnaces to make the sapphire needed for the screens for Apple’s iPhone 6, but the material was not made quickly enough nor of sufficient quality to satisfy the corporate giant, and only resulted in the smaller iWatch. Now GTAT hopes to sell the equipment to manufacturers, but such customers need to know that GTAT will be around to service them.

GTAT had been trying to obtain DIP financing ever since it filed for bankruptcy, finally negotiating a deal with many its existing bondholders. But the agreement has been delayed by intercompany squabbles, numerous objections and a fire on the roof of Apple’s Arizona plant, where the furnaces are housed. PC Connection – a creditor that is a Merrimack publically traded company – had been one of the leading objectors to the deal, which was tentatively approved by a federal bankruptcy judge last week. 

The bondholders and GTAT objected strongly to some of the wording of the judge’s order, saying that it gave the court too much power to spend the new money being pumped into the company. The order would “fundamentally change the nature of the DIP Loan, such that absent reversal of such modifications, the backstop lenders are no longer willing to fund or participate.”

The lenders objected primarily to two provisions. According to the bondholder filing, one would allow some of the money to be used to pay prepetition claims deemed important enough for GTAT to continue. GTAT has identified about $48 million of such claims, of which it is disputing $32 million. The order, according to the lenders’ filing, “unravels an important provision” of the agreement.

Even more problematic was a provision that interfered with the ability of the debtors to sell or transfer assets without a court order. This could interfere with an agreement to sell the furnaces at a certain level, enough to both pay off Apple and to pay back the lenders (who will receive 20 percent of the proceeds after Apple gets its money). The lenders also objected to using the funds to investigate any illegal or fraudulent transfers.  

The final order by the judge appears to have altered to conform with the lenders’ demands.  (Calls to GTAT and the lender’s attorney’s were not returned by deadline.)

GTAT has a year to pay back its the loan, which will be secured by all of GTAT’s assets on a super-priority basis.       

"This is an important milestone in our plan to emerge from Chapter 11, and we are pleased that our court-approved DIP financing loan has closed," Gutierrez said.