GT says confidentiality pact rules out bankruptcy explanation
Thu Oct 9, 2014 2:42pm EDT
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(Reuters) - Apple Inc (AAPL.O) supplier GT Advanced Technologies Inc (GTAT.O) argued on Thursday it could not reveal why it filed for bankruptcy and asked a court to keep crucial documents sealed, a highly unusual move that may keep investors in the dark about its unexpected financial implosion.
The company, which had been slated to provide Apple with scratch-resistant sapphire for future mobile devices, told the U.S. Bankruptcy Court it was barred from disclosures because it was "tied up in knots" by a confidentiality agreement.
At the first public hearing since GT Advanced's unexpected Monday bankruptcy filing, a lawyer for the company said the agreement also prevented it from revealing its Chapter 11 game plan.
GT Advanced forged a deal last year with Apple that involved outfitting an Arizona factory to make sapphire exclusively for the iPhone maker. Apple, which zealously guards the secrecy of its product pipeline, has been known in general to place strict confidentiality requirements on its many suppliers.
Thursday's request underscores the highly unusual nature of the case, starting with GT Advanced’s bankruptcy filing which caught everyone from Wall Street investors to Apple itself off guard.
Lawyer Luc Despins of Paul Hastings told U.S. Bankruptcy Judge Henry Boroff an unspecified confidentiality agreement prevented GT Advanced from disclosing the cause of its bankruptcy, or its turnaround plan. He also acknowledged the 90 percent drop in the company’s stock price in the first three trading days of this week.
“I want to convey to all shareholders and creditors that the company feels terrible about that loss of value and will work every day to recover that value,” he said.
“That’s an aspirational statement, not a guarantee.”
The judge ended the two-hour public hearing by retreating to his chambers for a private meeting with GT Advanced and lawyers for Apple and the U.S. Trustee, a Department of Justice official who acts as a watchdog in bankruptcy cases.
Despins said at the close of the hearing the sealing request was complex. “It’s like a Russian doll. You open the first one and there are four more in there.”
Ann Marie Dirsa, a lawyer from the Office of the U.S. Trustee, criticized the lack of disclosure by GT Advanced.
“The record is insufficient for the court to find what the court needs to find.”
By early afternoon, it was unclear what action Boroff had taken on the sealing motion, which GT Advanced said was needed due to a confidentiality agreement with unidentified party. GT Advanced acknowledged the request might be unprecedented but said it risked damages of $50 million per violation of the agreement.
The company will return to court on Oct. 21 to ask the court to make permanent many of the orders that were entered on a temporary basis on Thursday.
In the interim, Office of the U.S. Trustee will form an official committee of unsecured creditors which will play a key role in working with the company to draft a plan of reorganization. Boroff said he expected that GT Advanced would only have to provide creditors sensitive information if they signed a confidentiality agreement.
On Thursday, shares of GT Advanced were up 7.2 percent at $1.18 on Nasdaq.
CAUGHT UNAWARES
GT Advanced had promised on Monday to fill in the blanks on a bankruptcy filing that offered scant explanation as to what prompted a move that wiped out around 90 percent of the solar and sapphire supplier's market value.
Industry insiders and Wall Street analysts have been left to speculate. Their musings centered on GT's half-billion dollar deal with the iPhone maker, under which Apple helped bankroll a manufacturing plant in Mesa, Arizona, on the condition that GT hit certain operational targets.
Under terms of the deal, Apple said it would provide a total prepayment of about $578 million to help install furnaces and other gear in the factory, which would be owned by Apple and slated to employ more than 700. Apple would then be paid back over five years starting 2015.
Apple said on Wednesday that it was surprised with the bankruptcy filing and that it was working with Arizona officials on its next moves.
A Pennsylvania shareholder, Adam Levy, filed a proposed class action against the company's officers and directors alleging the management provided false and misleading information regarding last year's stock and bonds offerings.
The lawsuit also named as defendants the underwriters of those securities - Morgan Stanley, Goldman Sachs Group Inc and Canaccord Genuity Inc.
The case is In re: GT Advanced Technologies Inc, U.S. Bankruptcy Court, District of New Hampshire, No: 14-11916.
