How A Deal With Apple May Have Seen A Company Worth $US1.5 Billion On Friday Go Bankrupt Monday

GT Advanced Technologies, which makes sapphire glass components for smartphones, filed for bankruptcy on Monday.

Sapphire glass is an ultra-strong material, which Apple uses on both the camera lens and fingerprint scanner on the new iPhone. However Apple doesn’t, contra to some expectations, use the material for the iPhone’s main display.

The move caught the market flat-footed, and after the announcement, shares of the company were down 90%.

The drop in shares of GT Advanced on Monday has taken the company’s market cap from roughly $US1.5 billion Friday to about $US175 million.

At least one analyst that Business Insider has heard from following the announcement sees one possible reason for the sudden change from GT Advanced: Apple pulled the plug.

Jeffrey Osborne, an analyst with Cowen & Company, wrote that Apple, which loaned GT $US578 million as part of a supply agreement last November, “had the ability to call the interest free loan back and it appears they have done that.”

Last November, GT Advanced and Apple entered a multi-year sapphire materials agreement that would include GT manufacturing sapphire materials at an Apple facility in Arizona. That agreement said that GT would reimburse Apple over five years, starting in 2015.

In his note, Osborne wrote that the agreement with Apple, “was made in order to allow GT to purchase components for the manufacture of ASF systems at the Arizona facility leased from an Apple affiliate company.”

“Repayment was initially scheduled to begin January 2015 and follow a five-year schedule,” Osborne wrote. “In its repayment terms, it is most likely that a substantial amount of additional current portion of prepayment was triggered as a result of covenant terms held between GTAT and Apple in relation to operating and financial metrics that the company likely failed to meet.”

Osborne also noted that GT’s cash and equivalents fell to $US85 million on Monday from $US333 million back in June, and while Osborne hasn’t yet been able to confirm this, it seems this drawdown most likely resulted from early repayment triggers in the Apple loan.

Monday’s news comes about a month after Apple announced its latest iPhone models, which some investors were betting would feature a full sapphire display.

They didn’t, and immediately following that announcement shares of GT Advanced sold off. And since that news, GT shares have fallen about 40%.

Here’s the chart showing the last three months of trading in shares of GT.

And while 40% is a steep drop, this decline in a stock is rarely enough, on its own, to precipitate a bankruptcy filing.

In its announcement on Monday, GT said the bankruptcy filing, “does not mean we are going out of business; rather, it provides us with the opportunity to continue to execute our business plan on a stronger footing, maintain operations of our diversified business, and improve our balance sheet.”

But whatever the case, something changed at GT and changed quickly. This could be at least one reason why.

Here’s what the stock chart looked like on Monday.

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