GT Advanced Gets Court Approval of Revised Apple Accord

Bankrupt GT Advanced Technologies Inc. won approval of a settlement with Apple Inc., preventing costly litigation by granting the iPhone maker $439 million in claims against furnaces at a synthetic sapphire plant.

U.S. Bankruptcy Judge Henry Boroff said at a hearing today in Springfield, Massachusetts, that he would sign an order approving a revised settlement agreement. During a break in the hearing, GT Advanced and Apple made changes addressing concerns the judge raised.

Boroff said this morning that he was concerned about terms of the settlement giving Apple the immediate right to foreclose on Merrimack, New Hampshire-based GT Advanced’s assets in some circumstances. Under the revised accord, if GT Advanced is still in Chapter 11, Apple will file a notice of non-payment and intent to foreclose with the court before acting.

GT Advanced filed for bankruptcy in October, less than a year after announcing an agreement to supply Apple with synthetic sapphire, which is used to strengthen screens in mobile devices. The latest iPhone didn’t include GT Advanced’s product.

Exclusivity Agreements

The settlement frees GT Advanced -- which had reoriented its operations from supplying materials and equipment for solar panels and chips -- from some exclusivity agreements with Apple, gives it control of its sapphire-making patents and lets it retain ownership and sales rights for more than 2,000 production furnaces in Mesa, Arizona, according to court papers.

Apple will get an approved claim for $439 million secured by the furnaces. GT Advanced has as long as four years to sell them, with proceeds going to Cupertino, California-based Apple.

Before today’s hearing, GT Advanced, Apple, an unsecured creditors’ group and an ad hoc noteholder group negotiated other provisions, cutting the amount of money Apple collects from the first rounds of furnace sales.

Proceeds of the first 500 furnaces sold will be $169,000 per unit, rather than $200,000. Proceeds for the next 500 will be $224,000 per unit, down from $250,000. Those reductions will defer about $42.5 million to the last round of sales, giving GT Advanced more cash flow.

“The first ones are easiest to sell,” Luc Despins, an attorney for GT Advanced, told Boroff. “There’s more money left with us initially and there’s more risk for Apple on the back end.”

‘Million-Dollar Question’

The value of the furnaces is the “million-dollar question” and will be the “primary determinant of recovery amongst other things,” Irvin Schlussel, managing partner at Advantage Capital, said in a phone interview.

“If they sell these furnaces for $500,000, then all of a sudden we have a great prospect for full recovery for the bonds,” said the fund manager, who holds debt and equity in GT Advanced.

There is also an early payment discount of as much as $47.5 million if the furnaces are sold quickly, according to James Carr, as attorney for the unsecured creditors’ committee. Apple also agreed to extend the use of the Mesa facility through December 2015.

The settlement will “improve recoveries and allow the company to get back to focusing on what is important, which is raising bankruptcy financing as well as clearing out a path to proceed with the legacy solar businesses,” Schlussel said.

The case is In re GT Advanced Technologies Inc., 14-11916, U.S. Bankruptcy Court, District of New Hampshire (Manchester).

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