Date: Oct 10, 2014 Author: Peg Brickley Source: Wall Street Journal (
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Apple Partner Wants to Wind Down Sapphire Production
Bankruptcy Judge Closes Court Hearing That Would Have Detailed GT Advanced's Troubles
Distressed Apple Inc. AAPL +0.59% supplier GT Advanced Technologies Inc. GTAT -28.53% plans to exit the business of manufacturing sapphire after a failed effort to produce material for Apple's smartphone screens, court documents disclosed.
A U.S. bankruptcy judge on Thursday allowed GT to keep secret the details of its problems with Apple which preceded its filing for protection from creditors. GT's Chapter 11 bankruptcy filing shocked investors and other backers and sent its stock price plummeting.
After a closed session with Apple and GT on Thursday, Judge Henry Boroff ruled the two companies can keep the details of their arrangement confidential. Judge Boroff also authorized GT Advanced to seal court papers that explain what went wrong in the financing and supply arrangement with Apple, GT's largest creditor and once its potentially largest customer.
The lack of information in GT's initial court filings about the status of its relationship with Apple left trade creditors, owed $145 million, and bondholders, owed about $434 million, hoping for more details when GT made its first appearance before a judge in Manchester, N.H., on Thursday.
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 prompted its reorganization petition. Disclosing "the full causes of the filing and the game plan in the case" could cost GT $50 million in damages from a third party that has prohibited it from even discussing the confidentiality arrangements, Mr. Despins said. Later, a courtroom reference confirmed the third party was Apple.
Judge Boroff closed the courtroom to the public and held a session attended only by representatives for Apple, GT and U.S. Trustee William Harrington, an officer of the Justice Department responsible for monitoring the bankruptcy courts.
The judge signed an order sealing a supplemental declaration from a GT executive that pertains to the relationship with Apple. He also told GT to file emergency motions, including one asking for authorization "to wind down operations at sapphire manufacturing facilities." The wind-down will be accompanied by bonuses, court papers said.
Additionally, GT will file motions seeking expedited hearings on its "motion to wind down certain operations" and get out of contracts and leases connected to the operations. The judge set an Oct. 15 date for a hearing in Springfield, Mass., on the wind-down request.
Exactly what happened to GT's supply arrangement and the related financing deals with Apple hasn't been revealed.
Apple declined to comment on the proceedings, but reiterated its statement from Wednesday. "We are focused on preserving jobs in Arizona following GT's surprising decision and we will continue to work with state and local officials as we consider our next steps."
Thursday's decision came at a secret court session convened hours into the hearing in GT's Chapter 11 case. During a recess, Judge Boroff sent a court official into the courtroom to remove those assembled.
The judge didn't provide an explanation.
GT's unusual motion to seal a motion was filed at about 1 a.m. on Thursday. Judge Boroff's order says GT Advanced must give Apple three days notice if it wants to discuss their business relationship with the public or press, so that Apple can get a court order prohibiting disclosure of the information.
Apple and GT linked up in a $578 million financing arrangement that transformed GT from a producer of solar power and sapphire equipment into a manufacturer of sapphire material that was considered for use in Apple's new smartphones.
GT plunged to less than $1 a share from $11 a 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." 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, GT lawyer James Grogan said.
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
—Daisuke Wakabayashi and Joseph Checkler contributed to this article.
Write to Peg Brickley at peg.brickley@wsj.com
