GTT Communications today entered into a forbearance agreement with lenders that own a majority of the company’s outstanding 7.875% Senior Notes due 2024. As part of the agreement, the note holders agreed to forebear from exercising their rights until November 30, 2020. The forbearance agreement requires that GTT must provide 13-week cash flow forecasts and variance reports on a weekly basis. In addition the company must commit to hosting conference calls every other week with lenders.
Q2 2020 Earnings Release and Quarterly Financials
GTT has not yet reported earnings for Q2 2020 or filed its form 10-Q for the fiscal quarter ended June 30, 2020. In the process of closing its accounts for Q2 2020, GTT identified issues related to the recording and reporting of Cost of Telecommunications Services, which led to an accounting review. In September 2020, the company disclosed that it identified further issues as part of its accounting review related to:
- Recognition of certain expenses in 2017 and 2018 as goodwill, instead of on the company’s income statement
- Certain intercompany transactions recorded between 2016 and 2019
It is worth noting that the review did not identify any issues with GTT’s accounting for revenues or cash balances.
GTT Agrees to Sell Infrastructure Division to I Squared
Subsequently, in October 2020, GTT agreed to sells its infrastructure division to I Squared Capital, an infrastructure-focused private equity firm. However, significant uncertainty remains related to the sale of the infrastructure division to I Squared for $2.15bn. Specifically, had GTT not received the forbearance agreement from lenders, I Squared could have terminated its transaction with GTT, as part of the purchase agreement.
GTT Forbearance Agreement – Next Steps
Lenders have now provided GTT with an extended period of time to November 30th. Therefore, it appears that the lenders are aligned with GTT, in closing its transaction with I Squared. This would allow GTT to obtain the proceeds from the infrastructure division sale, which in turn, would allow the company to repay outstanding debt.
Recall that I Squared’s offer values GTT’s infrastructure division at 12.6x EBITDA and 16.8x cash EBITDA. With GTT able to recoup $1.8bn in net proceeds, it could reduce its net debt from $3.3bn to $1.5bn. This would bring the company’s net leverage ratio from 8.5x to 5.5x.
Q3 2020 Earnings
GTT will likely not provide financial results until it has concluded its accounting review. Therefore, expectations are that GTT will not report Q3 2020 earnings in a timely manner. Similarly, the filing of its 10-Q for the quarter ended September 30, 2020 will also be delayed.
GTT operates a Tier 1 internet network and fiber network that includes over 600 unique points of presence spanning 6 continents and provides services to 140+ countries.
