GT Advanced (GTAT) Ultra Secret Bankruptcy Hearing 'Bizarre' Says Analyst, Warns Investors Not to 'Bottom-Fish'

Raymond James analyst Pavel Molchanov weighed in on GT Advanced Tech (NASDAQ: GTAT) following the "First Day Pleadings" calling the hearings "more like the ultra-secretive, behind-closed-doors Foreign Intelligence Surveillance Court." He said the hearing feels like an NSA spy meeting.

Molchanov said none of his key questions were answered during the hearing. His questions were: First, insofar as GT's relationship with Apple broke down, was that a function of purely business factors, or was there a major technical/operational mishap at the sapphire fab in Arizona? Second, what is the current status of the fab (i.e., has there been any actual production there)? Third, bearing in mind that Apple's prepayment loan to GT was secured by the fab, will GT nonetheless try to challenge Apple's legal right to seize this asset?

Commenting on why the unprecedented secrecy, Molchanov said, "GT says that it cannot reveal anything publicly, even in a bankruptcy case setting, because it is bound by a confidentiality agreement. While it's not hard to surmise that the agreement is with Apple, GT will not even confirm that rather basic fact. To quote one of GT's lawyers speaking about the agreement, "It's like a Russian doll. You open the first one and there are four more in there." Thus, the causes of bankruptcy remain a secret, as is the company's game plan on how to move forward. Shareholders and bondholders are left in the dark."

Molchanov calls it a bizarre situation, and said investors should not 'bottom fish' in the shares.

"As the bankruptcy process continues, presumably at least some of the backstory will become known, but perhaps not - this is just a bizarre situation," he said. "Beyond the sheer drama of understanding how a company went from a $2 billion market cap (with a stock at an all-time high) to a sudden Chapter 11 filing within six weeks, the process will be mainly of interest to bondholders. As far as the equity goes, we remain of the view that it will be rendered totally worthless. The company's burden of liabilities - Apple's prepayment loan (secured debt), a variety of trade creditors (unsecured), convertible bonds (unsecured), along with any prospective debtor-in-possession financing - is massive. As such, we strongly discourage investors from trying to "bottom-fish" with GTAT shares. This is an exceedingly dangerous game to play in any bankruptcy situation, and it is certainly true in the case of GT. We maintain our Underperform rating."

For an analyst ratings summary and ratings history on GT Advanced Tech click here. For more ratings news on GT Advanced Tech click here.

Shares of GT Advanced Tech closed at $1.10 yesterday.

You May Also Be Interested In

• Histogen Inc. (HSTO) Files Chapter 11
• Ibotta (IBTA) Prices 6.56M Share IPO at $88/sh
• Amerant Bancorp (AMTB) Sells Texas Operations to MidFirst Bank