“Monday news broke that took almost everybody in the Apple investor ecosystem by surprise. Apple’s appointed Sapphire supplier, GT Advanced Technologies (GTAT), filed for Chapter 11 bankruptcy and announced its intention to seek debtor in possession financing,” Gregg Rosenberg writes for Seeking Alpha. “GTAT common shareholders need to know that Chapter 11 bankruptcy is intended to help a business reorganize for the benefit of its creditors. The creditors are given new equity positions in the company, and in almost all cases their first act is to zero out the old equity. Therefore, the old equity owners of a company which files for Chapter 11 get wiped out, except in very rare instances where they are merely massively diluted.”
“GTAT’s current board and management have become “debtors in possession”, which means they get to run the company under supervision of a bankruptcy court for a few months while they put together a reorganization plan. This holds off the creditors for a little while. Apple is currently GTAT’s largest single creditor, having loaned GTAT approximately $400M in prepayments to set up large scale Sapphire manufacturing, and having entered into a long term lease with GTAT on the AZ manufacturing facility,” Rosenberg writes. “A new lender who provides debtor in possession financing will be i) given priority in the line of creditors over all old lenders, including Apple; and ii) be allowed to secure their loan with a claim against all the company’s assets, physical and intellectual. If GTAT acquires debtor in possession financing with a lender other than Apple, it would hurt Apple in a few ways.”
“The cost to Apple would be just the value of the first three loan payments to GTAT, assuming the selloff of its non-Sapphire assets nets enough to pay off the smaller creditors,” Rosenberg writes. “This makes it relatively cheap in the bigger picture, especially given the alternative of accepting a large loss as a secondary creditor in a bankruptcy re-org. From that point, the market should perhaps expect Sapphire iPhones or Sapphire laminated iPhones from Apple in September 2016, in time for the iPhone 7.”
Read more in the full article here.
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