Item 1.01. Entry into a Material Definitive Agreement.
On August 10, 2020, GTT Communications, Inc. (the “Company”) entered into Amendment No. 3 and Waiver (the “Amendment and Waiver”) to that certain Credit Agreement, dated as of May 31, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified, the “Credit Agreement”) by and among the Company and GTT Communications B.V., (the “EMEA Borrower”) 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 disclosed in the Company’s Notification of Late Filing on Form 12b-25 filed on August 10, 2020, the filing of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020 (the “Form 10-Q”) has been delayed. In the course of closing the Company’s books for the quarter ended June 30, 2020, the Company identified certain issues related to the recording and reporting of Cost of Telecommunications Services and related internal controls.
Upon identifying these issues, the Company informed the Audit Committee of the Board of Directors (the “Audit Committee”) and CohnReznick LLP, the Company’s independent registered public accounting firm (the “Independent Auditor”). The Company’s management and the Audit Committee, with assistance from outside counsel and consultants, are reviewing (the “Review”) these issues and assessing the effect, if any, on the Company’s financial statements for the quarter ended June 30, 2020 and previously issued financial statements, as well as whether there are any material weaknesses in the Company’s internal controls.
At this time, the Company does not know whether the Review will identify any issues other than those described above. Although the Company plans to file the Form 10-Q as soon as possible after the completion of the Review, the Company does not anticipate filing the Form 10-Q on or before August 17, 2020, the extended period provided for the filing under Rule 12b-25(b) of the Securities Exchange Act of 1934, as amended. The Company is unable to predict a specific filing date at this time due to the early stage of the Review.
The Amendment and Waiver, among other things, (i) extends the deadline to deliver the Company’s consolidated financial statements under the Credit Agreement for the fiscal quarter ending June 30, 2020 to October 30, 2020, (ii) waives any actual or potential defaults and/or events of default under certain provisions of the Credit Agreement to the extent the current review by the Company requires, after the date of the Amendment and Waiver but on or prior to October 30, 2020, an amendment, supplement, modification and/or withdrawal of (1) any audit opinion related to historical consolidated financial statements or (2) historical consolidated financial statements that (x) reflect only non-cash changes and impacts and relate solely to a “cost of revenue” review or (y) do not result in a decrease in Consolidated EBITDA (as defined in the Credit Agreement) on a cumulative basis starting with, and including, the first fiscal period subject to such amendment, supplement, modification, restatement and/or withdrawal through and including the fiscal quarter ending March 31, 2020 by more than 15% compared to Consolidated EBITDA reported by the Company for such cumulative period and (iii) provides that the requirement to deliver financial statements of the Company for any period after the fiscal quarter ending June 30, 2020 is subject to a 30-day grace period before constituting an event of default.
In addition, the Amendment and Waiver removes the ability of the Company to reinvest cash proceeds of certain asset sales and prohibits (a) the Company from drawing in excess of 30% of the total revolving loan commitments (excluding the issuance of certain letters of credit) without the consent of revolving lenders under the Credit Agreement holding more than 50% of the aggregate revolving commitments thereunder, (b) the incurrence of incremental term or revolving loans under the Credit Agreement or incremental equivalent debt, (c) any payments of principal of the Company’s 7.875% senior unsecured notes due in 2024 prior to their scheduled maturity unless such payment of principal constitutes or is made with the proceeds of a permitted refinancing, (d) any non-U.S. subsidiary guarantor and the EMEA Borrower from incurring certain types of indebtedness (directly or by providing any guaranty), and (e) any non-U.S. subsidiary guarantor and the EMEA Borrower from guaranteeing any indebtedness of any U.S. credit party on or after the effective date of the Amendment and Waiver unless the U.S. loans under the Credit Agreement are guaranteed by such non-U.S. subsidiary guarantor or the EMEA Borrower, as applicable.
The Amendment and Waiver also requires that in the event of any sale of assets owned by non-U.S. EMEA credit parties that results in the repayment of all outstanding EMEA term loans under the Credit Agreement, any remaining excess cash proceeds above $100 million must be applied to repay U.S. term loans.
In addition, the Amendment and Waiver requires the Company to provide certain information to lenders and advisors to lenders regarding potential asset sales.
In connection with the entry into the Amendment and Waiver the Company paid each lender that timely consented to the Amendment and Waiver a fee equal to 0.25% of the sum of such lender’s revolving commitment and outstanding term loans as of August 10, 2020 and paid fees to the advisors of certain lenders.
The foregoing description of the Amendment and Waiver is not complete and is qualified in its entirety by the terms and provisions of the Amendment and Waiver, a copy of which is filed herewith as Exhibit 10.1 and is incorporated herein by reference.
Disclosures About Forward-Looking Statements
This 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 Company’s discussions with its Audit Committee and its Independent Auditor, the issues related to the recording and reporting of Cost of Telecommunications Services and related internal controls as well as the effect, if any, on the Company’s financial statements for the quarter ended June 30, 2020 and previously issued financial statements and the anticipated timing of the Form 10-Q filing constitute forward-looking statements that are based on the Company’s current expectations. The actual impact, amounts and accounting treatment of the issues identified in this Form 8-K will be finalized after the Company’s management and Audit Committee complete the Review and the Independent Auditor completes its review process.
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause the Company’s actual results, as well as the Company’s expectations regarding materiality or significance, the quantitative effects of the accounting treatment, and the timing of the filing of the Form 10-Q to differ materially from those in the forward-looking statements. 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’s internal control over financial reporting may be inadequate or have weaknesses of which the Company is not currently aware or which have not been detected; (ii) the Company may fail to satisfy certain covenants relating to financial statement delivery obligations and representations regarding the Company’s financial statements contained in its financing agreements without obtaining a waiver thereof; (iii) the Company is subject to risks associated with the actions of network providers and a concentrated number of vendors and clients; (iv) the Company could be subject to cyber-attacks and other security breaches; (v) the Company’s network could suffer serious disruption if certain locations experience damage or as the Company adds features and updates its network; (vi) 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; (vii) the Company may be unable to establish and maintain peering relationships with other providers or agreements with carrier neutral data center operators; (viii) 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; (ix) 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; (x) the Company may be liable for the material that content providers distribute over its network; (xi) the Company has generated net losses historically and may continue to do so; (xii) the Company may fail to successfully integrate any future acquisitions or to efficiently manage its growth; (xiii) the Company may be unable to retain or hire key employees; (xiv) the Company recently announced management changes and is currently conducting an executive search for a new permanent Chief Executive Officer; (xv) the Company is subject to risks relating to the international operations of its business; (xvi) the Company may be affected by future increased levels of taxation; and (xvii) 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. 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 Securities and Exchange Commission (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 is available on the Company’s website (www.gtt.net) and on the SEC’s website (www.sec.gov).