GT Advanced Technologies files for Chapter 11

December 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

GT Advanced Technologies Inc and a number of its subsidiaries filed for Chapter 11 bankruptcy protection in October, prompting speculation about the nature of the company’s collapse.

The firm filed for voluntary bankruptcy protection in a US bankruptcy court in Manchester, New Hampshire, listing assets of $1.5bn and liabilities of $1.3bn in its bankruptcy documentation. According to GT Advanced’s chief executive Tom Gutierrez, the company is hoping to exit Chapter 11 protection as quickly as possible.

Immediately following the announcement that the company had filed for Chapter 11 protection, shares in GT Advanced fell over 90 percent, taking the firm’s value down from $1.5bn to just $175m. According to GT Advanced’s bankruptcy documentation, the group has around $85m in cash and hopes to be granted debtor-in-possession (DIP) financing. A statement released by the company noted that GT Advanced intends to draw on its cash in hand and any future DIP financing to continue its day to day operations, including the payment of employee wages and other contractual obligations.

In some respects, the company’s filing came as a surprise to many analysts. GT Advanced entered an agreement with Apple in November 2013 which saw a prepayment of around $578m to the company in order to help finance the construction of a number of furnaces which would be required to produce synthetic sapphire utilised in a number of Apple’s products. The furnace project was estimated to create around 2000 jobs in construction, engineering and manufacturing across a number of sites.

However, in August, GT Advanced announced that its new manufacturing plant in Arizona would not be up and running until 2015, too late for the latest iteration of Apple’s hugely popular iPhone. Indeed, it has been suggested that GT Advanced was missing technical milestones as early as February 2014. Rumours of potential financial difficulty began to surface in September, when Apple launched its new line of iPhones with glass from rival company Corning Inc.

GT Advanced had been due to begin repaying Apple for its loan in 2015, but as part of the deal struck between the two firms, GT Advanced will now exit the sapphire business altogether, shutting down its facilities at Mesa, Arizona and Salem, Massachusetts. Under the terms of the deal, GT will also sell the majority of its remaining sapphire, along with 2000 sapphire furnaces. The agreement will also allow GT Advanced to settle its outstanding debt. “Today’s filing does not mean we are going out of business; rather, it provides us with the opportunity to continue to execute our business plan on a stronger footing, maintain operations of our diversified business, and improve our balance sheet,” said Mr Gutierrez. “We are convinced that the rehabilitative process of chapter 11 is the best way to reorganise, protect our company and provide a path to our future success. We remain committed to our roots in innovation and our diversification strategy. We plan to continue to operate as a technology leader across our core set of businesses.”

Some observers noted that GT Advanced had become far too reliant on its business with Apple. According to the company’s bankruptcy filing, the sapphire segment of GT Advanced’s business accounted for more than 75 percent of the $58m in revenue generated by the company in the second quarter of 2014, although much of the revenue generated at that time was linked to the sale of sapphire production equipment. In total, the company registered a net loss of $86.4m in Q2 and overall revenues of $299m in 2013. Sales of the company’s sapphire products to Apple in 2015 were expected to be worth in the region of $700m.

Despite the company’s failings, Apple has not ruled out working with a newly reorganised GT Advanced in the future, provided the firm reduces its operating costs and improves its production techniques. Around 650 employees have already been made redundant as part of the company’s restructuring.

Richard Summerfield