GTAT readies $175m 'war chest' bond issue

GT Advanced Technologies plans to raise $175 million to $200 million in a rather complicated bond issue, the Nashua-based company announced Monday.

GTAT will be using the proceeds to build its "war chest" – in the words of spokesperson Ryan Blair — to continue to diversify beyond the struggling solar industry, which is caught up in a trade war in China.

GTAT — which makes furnaces used to produce materials for solar and other industries — already has more than $300 million in cash and equivalents on hand, with only $136 million in long-term debt.

But last week, company said in a statement that the brewing trade war with China is spilling over to the European Union, and that could have "significant consequences" for GTAT's Chinese customers. The result would be that GTAT's production of furnaces to make solar cells "would likely remain depressed." The company might have to take "cost-cutting actions, which could be significant," it said.

Despite this, the company is on target to meet early guidance for this year, with revenues ranging from $925 million to $975 million and earnings per share in the range of $1.30 to $1.40, but it did change its guidance for the third quarter (ending Sept. 30).Revenue is now expected to be in the range of $110 million to $140 million, and it could even post a loss – its first ever as a public company – of 5 cents a share. The main reason for the downshift in expectations has to do with delays in the delivery of $50 million in business in its high-margin sapphire furnaces sector.

GTAT got into the sapphire business through an acquisition in the summer of 2010, because sapphire is used to make high-efficiency LED lighting. But despite the hype, that industry has not developed as quickly as GTAT had hoped, thanks to a glut on that market.

So GTAT is shifting its focus to the mobile phone industry. Indeed, on Sept. 19, the same day it announced a possible quarterly loss, GTAT touted a $29 million sale of furnaces for that purpose, and predicted that the mobile device market will contribute to a significant inflow of sapphire furnace orders in the second half of 2013.Blair said that GTAT will either use its expanded war chest to develop such "business opportunities," either through mergers and acquisition or internally through capital investment. Bit the issue — $175 million, with the option for underwriters to purchase an additional $26.25 million – however is not a straightforward one. The $1,000 denomination notes would mature on Oct. 1, 2017, with the interest rate – to be paid semiannually – still to be determined (as is the date when they are to be issued.)Those who buy the bonds also won't know until they try to convert them whether they will be getting stock or cash, or some combination of both, and the underwriters might actually use their notes to bet on the price of these bonds, which will be tied to the stock price.

"The company will enter into hedging transactions in connection with the convertible offering in order to cover the conversion exposure. The company will simultaneously sell warrants to cover a portion of the cost of the hedging transaction," was the written explanation sent to NHBR when inquiring about the derivative market GT will be creating.


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