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Apple GT Advanced in Secret Session with Bankruptcy Judge
1:54p ET October 9, 2014 (Dow Jones) Print
Apple, GT Advanced in Secret Session with Bankruptcy Judge
By Peg Brickley
A bankruptcy judge is huddling privately with GT Advanced Technologies Inc. and Apple Inc. over the problems that sent GT into bankruptcy Monday, shocking investors and other backers and sending its stock price into a tailspin.
Judge Henry Boroff dispatched a court official into the courtroom during a recess to bar the public and creditors who had assembled for the debut hearing in GT's Chapter 11 case, while GT and Apple talk things over.
The judge didn't explain his reasoning, and court staff didn't respond before Thursday's court session to inquiries from The Wall Street Journal about opportunities to register a protest over GT's motion to seal the documents that explain what went wrong between GT and Apple.
GT's unprecedented double-secrecy motion was filed at about 1 a.m. Thursday.
Discussions going on behind closed doors could well be the key to figuring out whether GT Advanced can reverse its fortunes in bankruptcy. Apple and GT linked up in a $578 million financing arrangement that transformed GT from a supplier of solar power equipment to a manufacturer of synthetic sapphire that was supposed to be used in Apple's new smartphones.
The iPhone 6 rolled out with Corning Inc.'s Gorilla glass instead, and GT filed for Chapter 11 protection in the U.S. Bankruptcy Court in New Hampshire, giving only a sketchy explanation of its financial situation.
That left trade creditors, owed $145 million, and bondholders, owed about $434 million, hoping for more details Thursday, when GT made its first appearance before a judge. Instead, GT lawyer Luc Despins said the company is "tied up in knots with confidentiality agreements" and can't reveal the full story behind the liquidity crisis that sent it into Chapter 11.
Setting out in public view "the full causes of the filing and the game plan in the case" could put GT at risk of being hit with $50 million in damages from a third party that has bound it to such secrecy that it can't even discuss the confidentiality arrangements, Mr. Despins said. Later, a courtroom reference confirmed the third party is Apple.
Exactly what happened to GT's supply arrangement and the related financing deals with Apple hasn't been revealed. Some published accounts allege GT's synthetic sapphire wasn't tough enough; other accounts allege GT couldn't make enough of the stuff to reassure Apple that it could meet the demand for the new iPhones. One person told the Journal that Apple was continuing to work with GT to try to resolve technical issues.
Suppliers, bondholders and shareholders are anxious to ascertain the status of GT's relationship with Apple, to evaluate the company's chances for survival. Some are demanding money now, fearful that the rift won't be repaired.
"We're already getting calls and threats," GT lawyer James Grogan said.
Federal bankruptcy monitors are also clamoring for more information about the company's finances, in a case where the usual disclosures haven't been made. "The record is insufficient for the court to find what the court needs to find," Ann Marie Dirsa, attorney for U.S. Trustee William Harrington, said during the public portion of Thursday's hearing.
A lawyer for the U.S. trustee was invited into the secret court session.
During the public portion of Thursday's court session, bondholder attorney William Baldiga urged that the business be kept running. The company's bankruptcy has "taken everyone here by surprise, not just bondholders, but I'm sure the trade creditors as well," Mr. Baldiga said. Keeping GT on its feet preserves creditor hopes, the lawyer said.
As for investors who saw share prices plunge from $11 per share to under $1 per share in the wake of Monday's bankruptcy filing, GT lawyer Mr. Despins said, "The company feels terrible about that loss of value and we will work every day, 24/7, to try to recover that value."
Meanwhile, GT Thursday won interim court approval of rules restricting trading for holders of more than 4.75% of the stock. That is a bow to Internal Revenue Service rules that limit the use of net operating losses when companies undergo a change in control
By the end of December, GT will have rung up total net operating losses of approximately $152 million, which translates into potential tax breaks of about $50 million, Mr. Grogan said.
Daisuke Wakabayashi and Joseph Checkler contributed to this article.
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