18 months after making a stunning Chap. 11 bankruptcy filing that followed a failed attempt to supply large volumes of sapphire cover glass to Apple, GT Advanced (OTCPK:GTATQ) has emerged from Chap. 11 as a newly-reorganized company.
GT, a materials and growth equipment supplier for the solar (polysilicon), sapphire, silicon, and silicon carbide markets, was able to emerge from Chap. 11 with the help of $80M in exit financing and a debt settlement with Apple. CEO David Keck: "With our strengthened financial flexibility, we will focus on our industry leading capabilities in the solar and sapphire markets.”
Three days ago: GT Advanced to emerge from bankruptcy "as soon as possible"
GT Advanced Technologies (OTCPK:GTATQ), a sapphire glass maker, expects to emerge from Chapter 11 bankruptcy "as soon as possible," after a bankruptcy court entered an order confirming the debtors' amended joint plan of reorganization.
The company filed for Chapter 11 bankruptcy in October 2014 after its scratch-resistant sapphire glass was left out of Apple's iPhone 6 and 6 plus.
GT’s existing lenders are offering bankruptcy exit financing including $60M in new debt and $20M in preferred stock, WSJ reports; the financing calls for GT to file a chapter 11 exit plan by Dec. 21, which must be implemented in Q1 2016.
Shareholders would recover nothing under the proposed reorganization plan.
On Nov. 23, GT Advanced (OTCPK:GTATQ) will auction sapphire furnaces it purchased with the help of loans from Apple (NASDAQ:AAPL), and divide the proceeds. Anything not sold will be handed to Apple, which will scrap the equipment. GT intends to keep as many as 600 furnaces.
The agreement, which still needs to be approved by a bankruptcy judge, extinguishes Apple's $439M claim against GT. GT had previously agreed to sell off ~2,000 sapphire furnaces to pay down the claim, but hasn't yet been able to sell any of them. The company has been facing a Dec. 31 deadline to get the furnaces out of Apple's Mesa, AZ facility, which is in the process of being converted into a data center command center.
GT, 13 months removed from filing for Chap. 11, obtained $95M in debtor-in-possession financing in July. Major job cuts were and a CEO change were announced in August. Shares have risen to $0.32 on the pink sheets.
GT Advanced's (OTCPK:GTATQ) job cuts "will be centered on the breadth of the company's core technologies and product offerings, including its ASF® sapphire equipment business, its traditional polysilicon and DSS solar PV business, the commercialization of the Merlin" cell interconnect technology and its specialty sapphire materials business."
A 40% reduction in operating expenses is targeted, and GT hopes the savings will help it emerge from Chap. 11 in Q1 2016. The company named a new CEO three weeks ago, and obtained a $95M debtor-in-possession financing facility shortly before that.
10 months after GT Advanced (OTCPK:GTATQ) filed for bankruptcy, and two weeks after the company obtained a debtor-in-possession loan facility, CEO Tom Gutierrez has announced he's stepping down, and is also leaving the board.
David Keck, the head of GT's polysilicon and photovoltaic (solar equipment) business, is the company's new CEO. In addition, Keck, CFO Raja Bal, and general counsel Hoil Kim will form an office of the chairman that will "oversee the company's chapter 11 matters."
Stock sales made by Gutierrez in the months before GT filed for Chap. 11 have drawn scrutiny.
Bankrupt GT Advanced (OTCPK:GTATQ -6.2%) has obtained a debtor-in-possession (DIP) loan facility that will be used to "fund working capital requirements and pay other costs and expenses with respect to the administration of GT's and certain of its subsidiaries' Chapter 11 cases."
Lenders include some of GT's convertible note holders. The loan "has a one year term and will be secured by all assets of the company on a super-priority basis."
Apple previously raised objections to GT's efforts to obtain DIP financing, arguing it gives lenders too much leverage to foreclose on GT's sapphire furnaces, the sale of which are to be used to pay down Apple's loans to GT. The financing is contingent on GT receiving enough insurance money to pay for the damage caused to its furnaces by a May fire to Apple's Mesa, AZ facility.
GT's shares currently trade at $0.122 on the pink sheets.
"We have developed a new product that will provide sapphire-like scratch resistance while maintaining the legendary toughness and break resistance of Gorilla Glass," Corning (NYSE:GLW) exec James Clappin stated at yesterday's investor meeting. Corning plans to start selling the composite, known for now as Project Phire, later this year.
Though Apple (NASDAQ:AAPL) stuck with Gorilla Glass for the iPhone 6 and would-be Apple sapphire supplier GT Advanced (OTCPK:GTATQ) filed for bankruptcy - it's now trying to sell ~2K sapphire furnaces to pay off creditors, with stockholders getting anything left over - there's still strong industry interest in sapphire as a potential smartphone cover glass solution due to its scratch-resistance and thinness; Apple has said it will "continue evaluating" GT's sapphire progress.
Meanwhile, Apple Watch and other smartwatches have adopted sapphire cover glass, and sapphire wafer/materials provider Rubicon (NASDAQ:RBCN) recently announced it's working on "scratch-resistant sapphire-coated faceplates for smartphones and larger devices," as part of a broader effort to expand into new markets. Concerns about the material's cost and brittleness remain.
Also disclosed by Corning: 1) The Display Technologies (LCD glass) segment is expected to see 2015 earnings growth comparable with 2014 levels. 2) Corning's glass sales related to large-size LCD TVs rose over 50% in 2014 on a unit basis; it forecasts 30%+ growth in large-size LCD viewing area by 2016. 3) The Optical Communications (fiber) business is expected to see high-single digit 2015 growth, aided by strong sales to the last-mile fiber, data center, and distributed antenna markets. (investor day slides)
Apple (AAPL +1.2%) plans to spend $2B to turn what used to be GT Advanced's (OTCPK:GTATQ -1.4%) sapphire manufacturing plant (located in Mesa, AZ) into a data center that will serve as a "command center" for its global data center infrastructure.
The 1.3M+ sq. foot plant will employ 150 full-time Apple workers, create 300-500 construction/trade jobs, and be powered by renewable energy. While GT owned the furnaces installed within the facility - they're now being sold to pay off GT's debt to Apple, as part of its Chap. 11 restructuring - Apple controls the facility itself.
Apple has been on a data center building spree over the last several years. The company has set a $13B FY15 (ends Sep. '15) capex budget, up from FY14's $11B and equal to nearly 6% of its FY15 revenue consensus.
Declaring the payouts necessary to motivate "the key drivers" of its restructuring, GT Advanced (OTCPK:GTATQ -3%) has asked the court handling its Chap. 11 bankruptcy to sign off on millions in executive bonuses.
If the plans are approved, GT expects to pay $2.275M to nine senior execs through a program that could double the salaries of certain execs if targets are hit. It expects to pay $1.4M to 28 other employees who don't qualify as "insiders."
For obvious reasons, GT doesn't believe equity bonuses will serve as an effective motivator. Pre-bankruptcy sales by CEO Tom Gutierrez and other execs have received a lot of scrutiny.
Shares are at $0.35 on the pink sheets.
Previous: GT Advanced's settlement cleared; furnace proceeds in focus
Bankruptcy judge Henry Boroff has signed off on GT Advanced's (OTCPK:GTATQ) revised settlement with Apple, through which GT stands to keep an extra ~$50M as it sells off its 2,000 sapphire furnaces to help pay down $439M in claims held by Apple.
GT attorney Luc Despins told the court he expects each furnace to sell for at least $500K. Apple will receive $169K/furnace for the first 500 sold, and $224K/furnace for the next 500.
Advantage Capital's Irvin Schlussel notes the furnace proceeds will determine how much GT's creditors recover ... and if anything will be left over for stockholders. "If they sell these furnaces for $500,000, then all of a sudden we have a great prospect for full recovery for the bonds."
GT rose to $0.49 on the pink sheets today. Its market cap stands at $67.4M.
A hearing for GT Advanced's (OTCPK:GTATQ +5.6%) settlement hearing with Apple has been postponed to Dec. 10 from Nov. 25, to give more time to investigate possible objections from creditors.
Apple's settlement with bankrupt GT gives the company a $439M claim secured by 2K+ sapphire furnaces that GT plans to sell. Nonetheless, Apple has said it will "continue evaluating" GT's sapphire progress.
In court docs unsealed earlier this month, GT accused Apple of pursuing "a classic bait-and-switch strategy" that left GT saddled with "an onerous an massively one-sided deal."
An Apple spokeswoman: "Apple (NASDAQ:AAPL) put a lot of effort into an ambitious new sapphire manufacturing process with GTAT which is not ready for production. We're going to continue evaluating GTAT's progress on larger sapphire boule development, as well as consider other options for the facility."
GT Advanced (OTCPK:GTATQ +49.7%) confirmed this morning it has reached a settlement with Apple (previous) that will result in its Mesa, AZ and Salem, MA sapphire production ops being wound down, and that a portion of its sapphire furnace sales will be used to pay down the company's debt to Apple. 650 Mesa employees have been laid off.
GT "retains control of its intellectual property and will be able to sell its sapphire growth and fabrication technology, including ASF and Hyperion, without restrictions."
In a deal that GT Advanced (NASDAQ:GTAT) lawyer Luc Despins calls an "amicable parting of the ways," Apple (NASDAQ:AAPL) and GT have agreed to wind down Apple's Mesa, AZ plant, once expected to provide sapphire that would be used to protect millions of Apple device screens..
The plant's sapphire furnaces (owned/operated by GT) will be sold - Fortune's Philip Elmer-DeWitt reports 2,039 will be unloaded - and some of the proceeds used to pay down GT's debt to Apple. Apple made $440M worth of prepayments to GT that were structured as secured debt.
The deal suggests Apple will be turning to 3rd-party sapphire suppliers to obtain cover glass for the Apple Watch, which is set to ship in early 2015. The regular Apple Watch and the high-end Apple Watch Edition use sapphire cover glass; the Apple Watch Sport doesn't.
As part of the deal, GT is seeking to have the original court docs (currently sealed) that explained its bankruptcy filing struck from the public record. However, its lawyers state GT will be able to disclose most of the information that's pertinent to its bankruptcy.
Attorney Luc Despins: "We’re optimistic that in the next hour or so we will have a signed settlement agreement with Apple. Optimistic, no guarantees of that." He adds the deal "resolves a lot of the issues before the court" in terms of explaining GT's bankruptcy filing.
GT shares are up 101.6% on the pink sheets to $0.73.