Tags: Apple | Sapphire | GT | Bankruptcy

Investors Blindsided by GT Advanced Bankruptcy Filing

Monday, 06 October 2014 04:46 PM

Stock and bond market partisans of sapphire screen maker GT Advanced Technologies Inc. saw their loyalty turn costly Monday.

After opening at $11.06, the stock plunged to 80 cents by the close, wiping out about $1.4 billion of market value after GT Advanced shocked investors with a Chapter 11 filing. Of 14 equity analysts that followed the maker of mobile phone screens, four considered it the equivalent of a buy at the end of last week, according to data compiled by Bloomberg.

“I can’t recall one like this before,” Lawrence Creatura, a fund manager at Pittsburgh-based Federated Investors Inc., said in an interview. Federated did not own GT Advanced shares as of its most recent filing, he said. “Ordinarily, bankruptcies are a ‘slow death by a thousand cuts’ type of affair. This one is unusual in its suddenness.”

Jeff Nestel-Patt, a spokesman for GT Advanced, didn’t return a phone call and e-mail seeking comment.

While Apple Inc. agreed last November to prepay about $578 million to GT Advanced to build furnaces that make synthetic sapphire, the company’s newest smartphones didn’t include the material.

GT Advanced listed assets of $1.5 billion and liabilities of $1.3 billion as of June 28, according to a Chapter 11 filing Monday in U.S. Bankruptcy Court in Manchester, New Hampshire. The company plans to continue operations during its reorganization.

Convertible Bonds

GT Advanced has $434 million of debt in two convertible offerings, each raised in the last two years, according to data compiled by Bloomberg. Its $214 million of 3 percent unsecured convertibles with a December 2020 maturity date plummeted 80 cents to 30 cents on the dollar Monday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“This is just off the charts,” said Bill Feingold, co- founder of Valhalla, New York-based Hillside Advisors LLC and author of “Beating the Indexes,” a book about convertible bonds. To trade well above par and then “go to bankruptcy in one fell swoop, you just simply don’t see it.”

The securities, which were only graded by Egan-Jones Ratings Co., traded at a record-high 183.7 cents July 2. The largest holders of the notes based on U.S. Securities and Exchange Commission filings are Fidelity Investments, Citadel Advisors LLC and Aristeia Capital LLC, according to data compiled by Bloomberg.

Wrong Call

GT Advanced, based in Merrimack, New Hampshire, was losing favor with analysts before its bankruptcy filing, though not enough to suggest the company was headed for Chapter 11 protection. It ended last week with a consensus rating of 3 in a system where buy ratings score a 5 and sells score a 1. The average stock in the Russell 2000 Index is rated 3.85, data compiled by Bloomberg show.

Jeffrey Osborne, an analyst at Cowen & Co., suspended coverage of GT Advanced Monday. He had rated the stock outperform, the equivalent of buy, since August, when he began coverage with a price target of $19.

“We have gotten this call wrong,” Osborne wrote in a note to clients Monday. “We did not appreciate that the company appears to have bitten off more than it can chew in regards to the relationship with Apple.”

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Stock and bond market partisans of sapphire screen maker GT Advanced Technologies Inc. saw their loyalty turn costly Monday, as the company's surprise bankruptcy filing sent its securities plummeting.
Apple, Sapphire, GT, Bankruptcy
Monday, 06 October 2014 04:46 PM
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