GT Advanced Technologies (Nasdaq: GTAT) Shocks Everyone, Including Apple, With Bankruptcy Filing

Apparently, Apple (Nasdaq: AAPL) was just as shocked as everyone else about GT Advanced Technologies (Nasdaq: GTAT) filing for bankruptcy.

Bidness ETC. is now reporting that although more will become apparent at today’s bankruptcy hearing, GTAT’s Chief Operating Officer, Daniel W. Squiller, earlier cited a “severe liquidity crisis” as one of the reasons.

GTAT has asked the U.S. bankruptcy court to keep some documents secret due to the confidentiality agreements it has with third parties. GTAT is making this unprecedented request for a simple reason: if the documents were disclosed, the company would have to pay $50 million (per violation) in damages.

Knowing Apple’s focus on secrecy, it is highly likely that GTAT does not want any documents pertaining to sapphire and Apple to come out in the open.

It’s becoming apparent rather quickly that Apple is not behind GTAT’s bankruptcy. According to industry sources quoted by the Wall Street Journal, Apple is helping the company remain solvent. Given GTAT’s current cash position, Apple has not yet demanded that loans be repaid. In fact, people familiar with the matter told the Wall Street Journal that Apple was helping GTAT overcome technical problems so it can make their last payment.

Seeking Alpha is reporting that on October 6, GTAT filed for Chapter 11 bankruptcy protection, vowing to continue “business as usual” as the company reorganizes. Almost immediately, the law firm of Johnson & Weaver announced that it was launching an investigation that “seeks to determine whether certain statements regarding the Company’s business and prospects were false and misleading when made.” Undoubtedly this is an issue that will occupy the minds of many GTAT investors for months to come.

GTAT’s supplier agreement with Apple, announced November 4, 2013, called for GTAT to produce sapphire for Apple on GTAT’s own production equipment in an Apple-owned facility in Mesa, Arizona. Apple would provide $578 million in 4 prepayments (essentially a loan) for the sapphire with repayment commencing in 2015. As of the end of 2013, GTAT had already received 2 of the 4 payments totaling $225 million, according to the Q4 2013 earnings presentation of February 24.

Apple might be withholding the last $139 million prepayment to the company, due in October, which was contingent on GTAT meeting some operational targets. Nimal Vallipuram of Gilford Securities, while suspending his Buy rating, said “Apple may have requested some payment earlier than expected” on the back of unmet targets.

Stephen Chin of UBS, while suspending coverage on GTAT, reduced his target price to 75 cents from $13. He believes the multi-year agreement between Apple and GTAT may have gone slower than expected. As per his own production checks, GTAT’s shipments were at “2 million two-inch equivalents (TIEs) a month,” compared to his estimates of 32 million TIEs. Jonathan Dorsheimer of Canaccord Genuity has also suspended coverage on the stock, believing that GTAT may not have to meet its objectives with Apple.

More information should be revealed at GTAT’s bankruptcy hearing later today.

[Image courtesy of Mac Observer]