GTAT’s bankruptcy plan draws fire from creditors
Would create company ‘run for the exclusive benefit of the exit lenders’
Creditors are objecting to GT Advanced Technologies’ plan to emerge from bankruptcy not because they will only receive less than a penny on the dollar, but because of some last-minute changes that they say would prevent them from even the remote possibility of getting more someday.
Under the latest plan – which is expected to go in front of the Bankruptcy Court March 3 – the Merrimack-based company would continue as a going concern, controlled by a group that is lending it $80 million.
The group, headed by Eugene Davis, a former GTAT board member, will control 84 percent of the reorganized GTAT. David Keck, would remain as CEO.
Unsecured creditors and former bondholders will receive 14 percent, on top of the expected 0.161 percent of the more than $500 million in claims they have submitted to the bankrupt company.
But shareholders of GTAT would be wiped out completely, receiving no payment, no hope of payment and no interest in the reorganized company.
But the creditors’ committee objected to what it termed “a shocking attempt” to strip them of basic minority shareholder protections,” charging that corporate government documents filed on Feb. 16 would result in a “corporation run for the benefit of the holders of common stock to one run for the exclusive benefit of the exit lenders.”
The creditors also objected to the control that would go to Davis, because he is also head of the trust that would try to recover the assets. (Davis would get $200,000, half of it in cash and half in stock as board chairman and $12,000 plus a success fee as a litigation trustee.)
The creditors aren’t alone in their criticism of the plan. The bankruptcy trustee also objected to Davis’ dual roll, as well as an attempt to give former officers immunity from recovery.
Shareholders are currently suing those officers, including former CEO Tom Gutierrez, and Apple Inc. in US District Court in Concord. They charge they allegedly misled shareholders that GTAT’s plan to produce sapphire for the tech giant’s mobile devices was on track, when it actually was collapsing.
The officers and Apple have asked the judge to dismiss the case. But the plaintiffs say that Apple wanted to cover up problems in advance of the release of its new iPhone, and the officers cashed in $20 million of stock before the problems with Apple became public.
The U.S. Securities and Exchange Commission is still investigating the matter, as are the Justice Department and the New York attorney general, according to the trustee’s objection. So far, the debtor special counsel has spent more than $5 million responding to the various charges of securities fraud, the trustee said.
“These equity holders are being provided no consideration under the plan, their interests are being canceled, they can’t vote, yet now must provide a release,” wrote the trustee.
Meanwhile, GTAT’s previous attempt to raise money and pay off its debt by selling the sapphire furnaces it installed at an Apple-owned Arizona plant have been mostly unsuccessful. The company did reveal an offer to purchase some 567 of the 2,000-plus furnaces for $26.6 million, but that and other factors required it to cancel an auction for the rest. At one point, the company had hoped to sell the furnaces for over $400 million.
In December, GTAT lost another $11 million, leaving it with $52.4 million in cash at the end of 2015, according to its latest financial statement. Stockholders’ equity was a negative $444.5 million.