A leading diversified technology company, GT Advanced Technologies (GTAT, Financial), that specializes in producing advanced material and innovative crystal growth equipment for the global consumer electronics, power electronics, solar and LED industries has left investors shocked at the news early this week that it is filing under Chapter 11 of the Bankruptcy Code. This news came in after the company decided to postpone the release of its third-quarter results expected last week to this week. Soon after the news dropped in, the share market reacted with negative vibes noticed in the share price which showed a clear drastic drop of nearly 90% leaving investors agape. So what is the bankruptcy filing storyline? Let’s find out from the next sections.
Against the backdrop
GT Advanced Technologies has applied for Chapter 11 bankruptcy, as the company had only $85 million as cash at the end of last month. There were some doubts on the cash position of the company after Apple (AAPL, Financial) decided not to use its sapphire glass for the products launched recently. In fact, Apple had signed an understanding with GT Advanced Technologies that it would use its sapphire glass mainly in the iPhone and iWatch series it recently released to the market.
The Apple’s order cancellation was a massive shock to the investors, but nobody had expected that the company would file a bankruptcy. However, one thing to be noted is that GT Advanced Technologies has filed the bankruptcy under Chapter 11 and not under Chapter 7. Though the word “bankruptcy” is never good for stockholders, in Chapter 11 bankruptcy the business has the opportunity to reorganize and run the show, whereas in Chapter 7 filing it directly refers to liquidation.
The caution tab for the investors
Though the technology of the company remains solid, the company requires cash to carry on its investments and other activities. As the company files under Chapter 11, it means that the financial position of the company has brought it to such a tricky situation. Analysts are of the view that while NASDAQ might halt the trading of GT Advanced Technologies shares on a temporary basis, there is enough chance for the stock price to plummet to a target of $0. Also, it is being emphasized that investors should sell off their shares and get whatever they can, instead of holding them any longer.
But if the proceedings are successful, investors will once again get to chance to enter the stock at an attractive price point.
The Chapter 11 filing shared details
The company has announced that its looking for debtor-in-possession. The status of debtor-in-possession actually allows the company to maintain control on the assets against which the creditor has lien. Business houses that apply for Chapter 11 usually continue to operate normally and some of the businesses go on to be successful if the company gets the appropriate funding requirements.
GTAT is currently in an interesting situation – the company has a solid technology that has wide application, but its facing a financial crisis and requires immediate injection of cash in order to carry on its operations. If the company is successful in getting debtor-in-possession financing, then all the crisis points will gradually dissipate. However, if the company fails to do it, things might get messy and it may have to go for Chapter 7 filing which is being avoided under recent circumstances.
But as per the company’s statement it seems that this filing will provide the opportunity to continue to execute the company’s business plan with a stronger footing and would help to improve the balance sheet substantially. The following statement from the company details what’s going on: “We are convinced that the rehabilitative process of chapter 11 is the best way to reorganize, protect our company and provide a path to our future success. We remain committed to our roots in innovation and our diversification strategy. We plan to continue to operate as a technology leader across our core set of businesses."
Final word
Investors who were hoping for large gains are now saddled with the tremendous loss as share prices have already plunged about 85% and now a free fall can be easily expected for the company shares. But the company management are still optimistic and they look at this move as a beneficial step to restructure the financing gap that the company is facing to see brighter days in the near future. Let’s stay tuned and keep a close watch on what details are shared on the debtor-in-possession funding expected, while filing under Chapter 11.
