9/24/12 GTAT
$175m (15%) sen unsec cb coming tonight from UBS/MER/CS. Terms: 5yr, 3-3.5% up 25-30%, full pctns. UOP = hedge/gcp. Interesting equity story w/the replacement of glass w/sapphire on smart phones/tablets. Cash will be used 2 continue its diversification from solar (45% of CY12 sales coming from LED). We see credit as CCC. PF cash = 502m, debt = 320m, LTM ebitda = 247, fcf -44m. We’d assume L+800. ADV = 730k, no leaps. Sounds like a broken record but model should be used as secondary tool. Volatile stock but attach credit option = -ve gamma/brw issues on a material move lower. We’d cap vol at 35. Brw = 1% (will get better so we’ll use blended 75bps). Theo = 104.3. There may be equity x/over interest, we like story, profile. Like GTAT on Mids.
Global provider polysilicon production technology and sapphire crystal.
PF Cash $502
PF Debt 320
LTM EBITDA 247
LTM FCF -44
Leverage 1.3x
Mkt cap = 770
GTAT 100% in solar market as recently as CY10. Have been working to diversify & expect 45% CY 12 sales to come from LED. Focused on add’l opportunities for sapphire, virtually shatter proof. Price reduction make it affordable option for smart phones, tablets, and devices. Solar market is weak and diversification will take time. Outstanding debt is $145m secured term loan. $175m rev available. Cash will be used for acq and expansion.
Our assigned spread L+800