GT Advanced Technologies Inc fka GTAT

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Review of GT's Pact with Apple Delayed by Creditors' Questions
6 minutes ago - DJNF


By Peg Brickley



Bondholders and other creditors are probing GT Advanced Technologies' proposed settlement with Apple Inc., the lender and customer that GT says lured it into debt with a "classic bait-and-switch" strategy.

GT filed for bankruptcy Oct. 6, after spending $900 million to open a sapphire factory to produce screens for Apple's latest generation of iPhones. Apple tapped another supplier for the screen material.

GT is seeking court approval of an agreement with Apple that GT says will speed its financial rehabilitation and end a business relationship that the smaller company says made it a "captive supplier" to Apple.

Court review of the proposed settlement has been pushed from next week to Dec. 10 amid questions from bondholders about whether GT is, once again, coming out on the short end of a deal with Apple.

"The noteholders believe...that the debtors may have settled viable claims against Apple for insufficient consideration," lawyers for bondholders wrote in papers filed Tuesday in the U.S. Bankruptcy Court in New Hampshire.

Apple did not respond to an invitation to comment Wednesday.

Bondholders are looking for information to assess whether the settlement that ends the chances of suing Apple is a good deal, given the possibility of collecting damages from the smartphone maker for allegedly asserting excessive control over its supplier.

GT has said it was pushed into a one-sided arrangement that required it to manufacture sapphire exclusively for Apple. According to GT, it was then subjected to shifting demands from Apple that made it impossible to profit from the venture. Apple wouldn't negotiate, say papers the manufacturer filed to explain its decision to seek bankruptcy protection.

Apple has denied bullying GT, and said it went to great lengths to help GT make a go of it when the company agreed to produce sapphire on a scale never before attempted.

Early in the bankruptcy case, Apple attempted to have GT's account of the relationship between the two companies kept under seal or to have alleged "defamatory or scandalous" material redacted. Judge Henry Boroff ordered the papers made public, after Dow Jones & Co., which publishes The Wall Street Journal and this newswire, challenged the sealing of documents.

Bondholders say at least four possible grounds of legal action against Apple would be traded away if the settlement is approved, including breach of the covenant of good faith and fair dealing. Additionally, lawyers for GT's bondholders say there may be grounds to have Apple's $439 million claim reduced in status from a secured debt to an unsecured claim.

The settlement is designed to allow Apple to collect the money it advanced to GT to transform itself from a manufacturer of equipment to a manufacturer of sapphire, with the funds coming from the sale of GT equipment. GT would get a share of the sale proceeds, under the proposed arrangement.

In court papers, GT has said it can't afford to fight Apple, and wants to put the soured relationship behind it.





(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]



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