Item 7.01 Regulation FD Disclosure.
Commencement of Solicitation of Prepackaged Plan of Reorganization
As previously disclosed, on September 1, 2021 the Company entered into that certain Restructuring Support Agreement, by and among the Company and certain of its subsidiaries (the “Company Parties”), and certain other consenting stakeholders parties thereto as described in the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2021 (the “RSA”), to support a restructuring of the indebtedness and capitalization (the “Restructuring”) of the Company and certain of its direct and indirect subsidiaries pursuant to the terms of a contemplated prepackaged chapter 11 plan of reorganization (the “Plan”) as described in the RSA. The RSA provides that, following the closing of the I Squared Infrastructure Sale (as defined in the RSA) and the I Squared Infrastructure Sale Proceeds Paydown (as defined in the RSA) and the commencement of the solicitation of votes on the Plan from certain classes of existing creditors, the Company Parties will file (the date of such filing, the “Petition Date”) for voluntary relief (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532 in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) in accordance with the RSA.
As contemplated by the RSA, on September 24, 2021, the Company commenced solicitation for the Plan by causing the Plan, a related disclosure statement and ballots to be distributed to lenders under that certain Credit Agreement, dated as of May 31, 2018, by and among the Company and GTT Communications B.V., as borrowers, KeyBank National Association, as administrative agent and letter of credit issuer, and 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”) and beneficial owners (or nominees, investment managers, advisors or subadvisors for the beneficial owners) of the Company’s outstanding 7.875% Senior Notes due 2024 (the “Notes”) that are “accredited investors” (as that term is defined in Rule 501 under the Securities Act of 1933, as amended). Information related to the solicitation is available at http://cases.primeclerk.com/GTTBallots.
Notice of Default
On September 16, 2021 (the “Notice Date”), the Company received a notice of default from the Trustee (as defined below) 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 (the “Trustee”). Under Section 4.15 of the Indenture, the Company was required to file with the SEC quarterly financial information for the quarter ended June 30, 2021 (the “Q2 2021 Form 10-Q”) within 15 days of the time periods specified in the SEC’s rules and regulations (including any grace periods). The Company did not file the Q2 2021 Form 10-Q within 15 days of August 16, 2021, which was the last day of the extension period provided for the filing under Rule 12b-25(b) of the Exchange Act, and the Company has therefore failed to comply with such reporting covenant. Under the Indenture, the failure of the Company to comply with the reporting covenant, if it continues for a period of 60 days after the Notice Date (the “Cure Period”) (which 60 day Cure Period ends on November 15, 2021), would constitute an Event of Default, as that term is defined in the Indenture. As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 2, 2021, pursuant to the terms of the Amended and Restated Noteholder Forbearance Agreement, dated as of September 1, 2021, by and among the Company, the guarantors party thereto and each of the beneficial owners (or nominees, investment managers, advisors or subadvisors for the beneficial owners) of the Notes party thereto (the “A&R Second Notes Forbearance Agreement”), entered into in connection with the RSA, the Forbearing Noteholders (as defined in the A&R Second Notes Forbearance Agreement) have agreed to, among other things, forbear from exercising any and all rights and remedies under the Indenture, the Notes and applicable law, including not directing the Trustee to take any such action, with respect to any defaults and events of default that have occurred, or that may occur during the forbearance period, including with respect to the filing of the Q2 2021 Form 10-Q.
The foregoing summary of terms and provisions of the Indenture is qualified in its entirety by reference to the full text of the Indenture.
This Item 7.01 is being furnished and shall not be deemed “filed” for any purpose. This Item 7.01 shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to this Item 7.01 in such filing.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and such statements are intended to be covered by the safe harbor provided by the same. These statements are based on the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. The above statements regarding the Restructuring and the Plan constitute forward-looking statements that are based on the Company’s current expectations.
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause future events to differ materially from those in the forward-looking statements, many of which are outside of the Company’s control. These factors include, but are not limited to, the effects on the Company’s business and clients of general economic and financial market conditions, as well as the following: (i) the Company, prior to the Petition Date, may fail to satisfy certain covenants contained in the Indenture and/or the Credit Agreement, which may result in events of default, and if the Company’s forbearance agreements with creditors terminate and/or the Company is unable to obtain further agreements from creditors with respect to forbearing from exercising remedies or amendments or waivers, as applicable, the Notes and the Company’s obligations under the Credit Agreement may be accelerated and the RSA may be terminated which may result in the Company being unable to satisfy its obligations thereunder and precipitate a filing for chapter 11 without the benefit of the RSA and the agreements embodied therein and in the Plan; (ii) the Company has announced that its previously issued financial statements for the years ended December 31, 2019, 2018 and 2017, each of the quarters during the years ended December 31, 2019 and 2018 and the quarter ended March 31, 2020 (the “Non-Reliance Periods”) and related disclosures and communications should no longer be relied upon as a result of preliminary findings of the Review; the Company is continuing to finalize its quantification of the impact of errors identified by the Review on financial results for the Non-Reliance Periods and the impact may be materially different than previously disclosed estimates; (iii) the completion of the Review and the completion and filing of the restated financial statements relating to the Company’s previously issued consolidated financial statements for the Non-Reliance Periods, its Quarterly Reports on Form 10-Q for the quarters ended June 30, 2020 and September 30, 2020, its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, its Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, the Q2 2021 Form 10-Q and any subsequent delayed periodic SEC filings may take longer than expected as a result of the timing or findings of the Review or the Company’s independent registered public accounting firm’s review process; (iv) existing cash balances and funds generated from operations may not be sufficient to finance the Company’s operations and meet its cash requirements; (v) the Company is subject to risks associated with the actions of network providers and a concentrated number of vendors and clients; (vi) the Company could be subject to cyber-attacks and other security breaches; (vii) the Company’s network could suffer serious disruption if certain locations experience damage or as the Company adds features and updates its network; (viii) the Company is subject to risks associated with purchase commitments to vendors for longer terms or in excess of the volumes committed by the Company’s underlying clients, or sales commitments to clients that extend beyond the Company’s commitments from its underlying suppliers; (ix) the Company may be unable to establish and maintain peering relationships with other providers or agreements with carrier neutral data center operators; (x) the Company’s business, results of operation and financial condition are subject to the impacts of the COVID-19 pandemic and related market and economic conditions; (xi) the Company may be affected by information systems that do not perform as expected or by consolidation, competition, regulation or a downturn in the Company’s industry; (xii) the Company may be liable for the material that content providers distribute over its network; (xiii) the Company has generated net losses historically and may continue to do so; (xiv) the Company may fail to successfully integrate any future acquisitions or to efficiently manage its growth; (xv) the Company may be unable to retain or hire key employees; (xvi) the Company recently announced management changes; (xvii) the Company is subject to risks relating to the international operations of its business; (xviii) the Company may be affected by tax assessments, unfavorable tax audit outcomes, delayed tax filings and future increased levels of taxation; (xix) the Company has substantial indebtedness, which could prevent it from fulfilling its obligations under its debt agreements or subject the Company to interest rate risk; (xx) the potential failure of the Company to realize anticipated benefits of the I Squared Infrastructure Sale; (xxi) risks from relying on Cube Telecom Europe Bidco Limited (the “Buyer”) for various critical transaction services and network services for an extended period under the transition services agreement and the master services agreement contemplated by that certain Sale and Purchase Agreement, dated as of October 16, 2020 (as amended, the “Infrastructure SPA”), among the Company, its subsidiaries GTT Holdings Limited, Global Telecom and Technology Holdings Ireland Limited, Hibernia NGS Limited and GTT Americas, LLC (collectively, the “Sellers”) and the Buyer; (xxii) the potential impact of consummation of the I Squared Infrastructure Sale on relationships with third parties, including customers, employees and competitors; (xxiii) the ability to attract new customers and retain existing customers in the manner anticipated; (xxiv) the Company has announced that it expects to report material weaknesses in internal control over financial reporting and its internal control over financial reporting may have further weaknesses of which the Company is not currently aware or which have not been detected; (xxv) the RSA may be terminated by certain of its parties if specified milestones are not achieved, amended or waived, or if certain other events occur; and (xxvi) the ability to obtain relief from the Bankruptcy Court to facilitate the smooth operation of the Company’s businesses during the Chapter 11 Cases and other risks and uncertainties relating to the contemplated Chapter 11 Cases, including but not limited to, the Company’s ability to obtain approval of the Bankruptcy Court with respect to motions, the effects of the Chapter 11 Cases on the Company and on the interests of various constituencies, Bankruptcy Court rulings in the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the length of time the Company will operate under the Chapter 11 Cases, risks associated with third-party motions in the Chapter 11 Cases, regulatory approvals required to emerge from chapter 11, the
potential adverse effects of the Chapter 11 Cases on the Company’s liquidity or results of operations and increased legal and other professional costs in connection with the Chapter 11 Cases. The foregoing list of factors is not exhaustive. The Company does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. For a discussion of a variety of risk factors affecting the Company’s business and prospects, see “Risk Factors” in the Company’s annual and quarterly reports filed with the SEC, including, but not limited to, its Annual Report on Form 10-K for the year ended December 31, 2019 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, which have been filed with the SEC and are available on the Company’s website (www.gtt.net) and on the SEC’s website (www.sec.gov).
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