GT Advanced Technologies Inc fka GTAT

[lecorb]

GT Advanced Restructuring Advisers Disclose Client Ties to Apple
5:37p ET October 24, 2014 (Dow Jones) Print

By Peg Brickley

Some of the army of bankruptcy advisers guiding GT Advanced Technologies Inc. through bankruptcy by way of a fast settlement with Apple Inc. have counted Apple as a client, or still do, and those connections call for a close look, legal expert say.
GT Advanced filed for Chapter 11 bankruptcy protection Oct. 6, after Apple passed on the chance to use its synthetic sapphire material in screens for the new generation of iPhones. Details of what went wrong between the two companies remain under wraps by order of a federal bankruptcy judge.
Dow Jones & Co, publisher of The Wall Street Journal, U.S. Trustee William Harrington, a Department of Justice lawyer charged with monitoring the bankruptcy courts, and New Hampshire Attorney General Joseph Foster have challenged the secrecy in the case as illegal.
Court filings show two major law firms working for GT Advanced---Paul Hastings LLP and Ropes & Gray LLP--and the company's restructuring adviser, Alvarez & Marsal LLC have or had client ties to Apple. Connections between GT Advanced's advisers and Apple aren't necessarily conflicts. Bankruptcy court oversight, however, requires those representing the financially strapped company be tested for signs of divided loyalties.
"It's basically because you're using the public system to resolve your debts, and therefore we want to make sure that the system's pure and clean," said Stephen Lubben, holder of the Harvey Washington Wiley Chair in Corporate Governance & Business Ethics at Seton Hall University School of Law.
Connections to Apple were disclosed as part of routine court filings required of professionals seeking to be paid for work in GT Advanced's court-supervised restructuring. The reason for the tell-all is simple, said Nancy Rapoport, professor at the University of Nevada, Las Vegas, School of Law: creditors are ultimately paying, so the court needs to evaluate whether they will get devoted representation.
"The money to pay all these people typically comes from the pockets of the unsecured creditors and that's why it's important for the court, and not the professionals themselves, to decide whether someone is disqualified," Ms. Rapoport said.
Owed $439 million, Apple is described as the top secured creditor in GT Advanced's case as well as the counterparty to contracts that the smaller company has sought to shake off as "oppressive and burdensome," according to court papers. Instead of an open court fight, Apple and GT Advanced are seeking a settlement that would end their contract and erase from the court record the evidence of what pushed GT Advanced into bankruptcy.
Architects of the settlement on GT Advanced's side of the table are Paul Hastings LLP, which lists Apple as a former client, as well as Alvarez & Marsal, a restructuring adviser that didn't say whether Apple is a current or former client, only that it was one or the other. In court papers, both firms vowed they are able to look out for GT Advanced's interests in the bankruptcy case and that their work for Apple was, or is, unrelated to GT Advanced.
Ropes & Gray LLP, which is still working for Apple as well as for GT Advanced, certified it is conflict-free to continue as the smaller company's corporate counsel. In court papers, Ropes & Gray added the caveat that, if it comes down to a fight with Apple, or even preparation for a fight with Apple, GT Advanced will have to turn to Paul Hastings or another law firm. The law firm is being hired under a provision that calls for less extended scrutiny than will be applied to lead bankruptcy counsel Paul Hastings, Mr. Lubben noted.
In a statement Friday, Ropes & Gray said it didn't play a significant role in crafting the proposed contract settlement with Apple. "Ropes & Gray did not negotiate the settlement agreement. Paul Hastings represented GT Advanced Technologies in the negotiations. Ropes & Gray has a longstanding relationship with GT Advanced Technologies as corporate counsel," according to the statement the firm released through a spokesman.
Luc Despins, who is leading Paul Hastings' work as bankruptcy counsel to GT Advanced, said the firm "properly disclosed that Apple was a previous client of Paul Hastings. Apple is no longer a client of the firm, our prior work had nothing to do with the issues we are handling now, and we are fully committed to vigorously representing GTAT's interests."
Restructuring adviser Alvarez & Marsal North America, LLC, whose employees will be billing up to $925 an hour to GT Advanced, is being hired to manage "the overall restructuring process, the development of ongoing business and financial plans, and restructuring negotiations." A spokeswoman for the firm didn't respond to inquiries about whether Apple remains a client of Alvarez & Marsal.
Alvarez & Marsal certified in court filings it doesn't hold any interest adverse to GT Advanced and meets the legal standard for being hired as a bankruptcy professional.
"We have full confidence in our advisors," said GT Advanced spokesman Jeff Nestel-Patt in an email Friday.
Representatives of Apple weren't immediately available for comment.
U.S. Trustee Harrington and the official committee representing GT Advanced's unsecured creditors have until next week to tell the U.S. Bankruptcy Court in New Hampshire whether they have concerns about GT Advanced's advisers.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
Write to Peg Brickley at [e-mail]