|Shares Out. (in M):||60||P/E||nm||nm|
|Market Cap (in $M):||180||P/FCF||nm||nm|
|Net Debt (in $M):||3,500||EBIT||0||0|
|TEV (in $M):||3,680||TEV/EBIT||nm||nm|
|Borrow Cost:||Tight 15-50% cost|
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Quick Hitter: GTT Communications is likely to file for bankruptcy and wipe out the equity in the near future. Currently the shares are still trading with ~$180-200mm equity value due to Wall Street Bets/Reddit/Meme Stock Report, et al (see below pictures of tweets) rather than a value creating recapitalization that preserves material equity value.
GTT share price is likely disconnected from reality in this world of hyper-reality and Meme stocks. The company has been undertaking a restructuring process due to accounting errors, that is likely going to come to a resolution within the next 60 days, and be de-listed from NYSE. In a recent 8-k filing, an agreement was entered into by the company and Square Capital that would allow GTT to file for Chapter 11 as part of the sale arrangement. I do not think this filing has been over-looked by investors. I do believe the fate has been sealed, but the equity is levitating due to WSB/Reddit/Meme investors rather than fundamentals of the newCo.
Entry Catalyst: Meme investors buying/bidding up a likely worthless equity
Duration: ~0-60 days
Exit Event: Chapter 11 bankruptcy
Feb 17: GTT Amends New Credit Facility, to Propose Deleveraging Plan
Feb 18: GTT IS SAID TO WEIGH PRE-PACKAGED BANKRUPTCY FILING TO CUT DEBT
March 8: Fitch Downgrades GTT to 'CC'; Withdraws Ratings
March 8: GTT UNSECURED CREDITORS WOULD RECEIVE MAJORITY OF NEW EQUITY
March 30: GTT FORBEARANCE PERIOD EXTENDED TO APRIL 15: FILING
April 21: GTT COMMUNICATIONS FORBEARANCE EXTENDED TO MAY 3: FILING
May 24: GTT BANKRUPTCY TALKS SAID TO ENVISION WIPING OUT BONDS, EQUITY
June 2: GTT COMMUNICATIONS QUICKLY RISES TO SESSION HIGH, UP 52% (Short squeeze report)
June 16: GTT COMMUNICATIONS FORBEARANCE EXTENDED TO JUNE 28: FILING
8-k filing language:
Amended Infrastructure Sale and Purchase Agreement
As previously disclosed, on October 16, 2020, GTT Communications, Inc. (the “Company”), together with its subsidiaries GTT Holdings Limited, Global Telecom and Technology Holdings Ireland Limited, Hibernia NGS Limited and GTT Americas, LLC (collectively, the “Sellers”), and Cube Telecom Europe Bidco Limited (the “Buyer”) entered into a Sale and Purchase Agreement (as amended through the date hereof, the “Infrastructure SPA”) with respect to the Company’s pending infrastructure sale transaction (the “Sale Transaction”). As previously disclosed, on February 15, 2021, the Sellers and the Buyer entered into the Project Apollo – KPMG VDD Reports Deadline Extension Letter, which amended the Infrastructure SPA in relation to the requirement of the Sellers to deliver the VDD Reports to the Buyer.
On June 10, 2021, the Sellers and the Buyer entered into the Project Apollo – Share Purchase Agreement Letter (the “SPA Letter Amendment”), which includes a conformed version of the Infrastructure SPA reflecting amendments to the Infrastructure SPA.
The SPA Letter Amendment amends certain termination rights in favor of the Buyer as follows:
•removes the termination events relating to an insolvency event and related items;
•amends the automatic termination events with respect to events of default under that certain Indenture, dated as of December 22, 2016 (as amended, supplemented or otherwise modified, the “Indenture”), by and between the Company, as successor by merger to GTT Escrow Corporation, and Wilmington Trust, National Association, as Trustee, and that certain Credit Agreement, dated as of May 31, 2018, by and among the Company and GTT Communications B.V. (“GTT B.V.”), as borrowers, KeyBank National Association, as administrative agent and letter of credit issuer, and the lenders (the “Lenders”) and other financial institutions party thereto from time to time (as amended, restated, amended and restated, supplemented or otherwise modified, the “Credit Agreement”), such that the Infrastructure SPA will not automatically terminate if (i) an event of default occurs under the Credit Agreement and Lenders holding at least a majority of the outstanding loans and revolving commitments under the Credit Agreement and Lenders holding at least a majority of the outstanding revolving commitments under the Credit Agreement agree to waive or forbear from exercising remedies under the Credit Agreement with respect to such event of default within five business days or have not taken any affirmative action to exercise remedies under the Credit Agreement with respect to such event of default, (ii) an event of default occurs under the Indenture and requisite beneficial owners of the Company’s outstanding 7.875% Senior Notes due 2024 (the “Notes”) issued under the Indenture agree to waive or forbear from exercising remedies under the Indenture with respect to such event of default within five business days or have not taken any affirmative action to exercise remedies under the Indenture with respect to such event of default, (iii) the Sellers, or any member of the Sellers’ group, make a filing under chapter 11 of title 11 of the United States Code (a “Chapter 11 Case”) within five business days of any such events of default or (iv) the applicable event of default arises solely in connection with the pursuit or satisfaction of the Sale Transaction or as a result of the commencement of a Chapter 11 Case;
•provides an additional automatic termination event if any Seller and/or member of the Sellers’ group enters into a restructuring support agreement other than (i) an Acceptable RSA (as defined below), (ii) a plan support agreement that supports and is consistent with the Infrastructure SPA, provides for the payment of the Buyer’s reasonable and documented expenses in connection with any restructuring (including in connection with any Chapter 11 Case) up to $5 million in the event that the Infrastructure SPA is terminated for any reason other than a breach by Buyer of any of its material obligations under the Infrastructure SPA (the “Buyer’s Restructuring Expenses”) and the Break-Up Fee (as defined below) and does not otherwise materially or adversely affect the consummation of the Sale Transaction or the rights of the Buyer under the Infrastructure SPA or related transaction documents (an “Acceptable PSA”) or (iii) a restructuring support agreement to which the Buyer is a party
•provides an additional automatic termination event if the Sellers file a Chapter 11 Case and the Sellers fail to achieve the applicable milestone dates in connection with the filing of an Acceptable Sale Motion (as defined below) or obtaining the Sale Protection Order (as defined below) or an Acceptable Sale Order (as defined below), subject to potential extensions; and
•provides an additional automatic termination event if an Acceptable RSA terminates with respect to the Buyer (other than as a result of a breach by the Buyer); provided that this termination event will not apply if (i) the applicable bankruptcy court has entered an Acceptable Sale Order prior to such termination or (ii) the Sellers are using all reasonable efforts to satisfy the Sale Condition (as defined below) at the time such Acceptable RSA is terminated.
The SPA Letter Amendment adds the following additional conditions to the completion of the Sale Transaction:
•if the Sellers do not commence a Chapter 11 Case prior to the completion date, (i) the Buyer, (ii) the Sellers, (iii) holders of greater than 66.67% of the Notes, (iv) Lenders holding greater than 66.67% of the obligations outstanding under the Credit Agreement and (v) subject to certain exceptions, lenders holding greater than 66.67% of the obligations outstanding under that that certain Priming Facility Credit Agreement (as amended, restated, amended and restated, supplemented or otherwise modified, the “Priming Facility Credit Agreement”), among the Company, GTT B.V., the lenders party thereto and Delaware Trust Company, as administrative agent shall have shall have entered into a restructuring support agreement that provides for (a) the assumption of the Infrastructure SPA and ancillary agreements, (b) provides releases in favor of the Buyer and its group in the form set forth in the Infrastructure SPA and (c) provides for the payment of the Buyer’s Restructuring Expenses and the Break-Up Fee on the terms and conditions set forth in the Infrastructure SPA (the “RSA Condition,” and such agreement, an “Acceptable RSA”);
•in the event that any of the Sellers file a Chapter 11 Case prior to the completion date, the Sellers are required to: (i) file a motion seeking entry of an order approving the Sale Transaction (an “Acceptable Sale Order”) with the bankruptcy court within three days of such filing (an “Acceptable Sale Motion”); (ii) obtain an order approving the provisions of the Infrastructure SPA relating to payment of the Buyer’s Restructuring Expenses and the Break-Up Fee from the bankruptcy court within 21 days of such filing (the “Sale Protection Order”); and (iii) obtain an Acceptable Sale Order from the bankruptcy court providing for, among other things, the approval of the Sale Transaction as contemplated by the Infrastructure SPA, prior to the later of (a) 45 days after the commencement of the Chapter 11 Case and (b) 20 days following the satisfaction or waiver of all completion conditions other than regulatory conditions (the “Sale Condition”); and
•in the event that any of the Sellers file a Chapter 11 Case prior to the completion date, any incremental financing agreement that the Sellers enter into prior to the completion date for purposes of financing an in-court reorganization shall be on terms and conditions not inconsistent with the Infrastructure SPA and the Acceptable RSA, the Acceptable PSA, or the Acceptable Sale Order, as applicable.
In addition, the SPA Letter Amendment provides that the Sellers shall (i) pay the Buyer a break-up fee equal to three (3) percent of the aggregate base purchase price ($60,600,000) in the event that the Infrastructure SPA is terminated in certain circumstances, with such fee to be payable within five (5) business days of the Sellers consummating certain alternative transactions or plans of reorganization (the “Break-Up Fee”) and (ii) reimburse the Buyer for the Buyer’s Restructuring Expenses, up to a cap of $5 million, in the event that the Infrastructure SPA is terminated for any reason other than a breach by the Buyer of any of its material obligations thereunder.
In addition to the foregoing, the SPA Letter Amendment also, among other things, (i) amends the conditions to the release of the first $37.5 million of the $75.0 million holdback such that in the event that a Chapter 11 Case has been commenced prior to the date on which any adjustment to the purchase price has been paid, such release will take place no earlier than following the issuance of a bankruptcy court order confirming a plan of reorganization in the Chapter 11 Case; (ii) adds post-completion obligations of the Buyer to use reasonable efforts to obtain letters of credit from the Group’s third party finance providers in order to cause the release of collateralized cash under existing letters of credit and return such released amounts to the Sellers net of reasonably incurred costs in connection with such releases and net of the amount of any cash collaterals required to be provided by the Buyer in connection with such new letters of credit; (iii) provides that specified tax filings not completed prior to completion will be completed post-completion and the Sellers will indemnify the Buyer and provide any required cooperation and information in respect of these tax filings; and (iv) makes other technical changes to provide that the filing of a Chapter 11 Case will not cause a breach under the Infrastructure SPA.
The Company continues to work expeditiously towards consummating the Sale Transaction. In addition to continuing its efforts to obtain necessary governmental and third party consents and approvals and otherwise satisfy the conditions to closing under the Infrastructure SPA, the Company has made substantial progress implementing the corporate reorganization contemplated in connection with the Sale Transaction (the “Reorganization”) and is continuing to take steps to separate the infrastructure assets that are the subject of the Infrastructure SPA from the rest of the Company’s business. The Sale Transaction is currently expected to close during the summer of 2021.
The foregoing description of the SPA Letter Amendment is not complete and is qualified in its entirety by the terms and provisions of the SPA Letter Amendment, a copy of which is filed herewith as Exhibit 2.1 and is incorporated herein by reference.
Here is where it gets tricky. Over the course of the last few days, the loan sharks, aka stock loan desks are playing games with the stock as well as the overhang of Meme investors. This is causing havoc not only with the borrow rate (range is 40-60%), but also the availability/borrow. Scraps of borrow are available at Goldman, Citi, BofA, Jeffries, et al ranging from 10-150k shares at various points in the day. In addition, GTT has a highly liquid options market for July and August, which I think/hope are the relevant months to express a trade structure. As an example the August 2.50 puts are currently 55c-70c on 5k up. There are other various structures to explore as well via selling calls to fund puts on a ratio, but those trades come with a fair amount of gotcha risk considering the precarious borrow situation. Net/Net: I like the reward versus risk of utilzing options and shorting stock to play for the equity going to zero.
-continued forbearance delays (original agreement was signed in April..then June 3, then June 17 and recently extended to June 28)
-stock loan playing a dangerous game
-options market bid/ask can leave some awful marks until the finally
-ability to size the trade is difficult
-equity recovery/thesis incorrect
Appendix / Short Interest Trends:
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