Estimated Recoveries Drop Under GTT Amended Plan; Reorganized Equity Reallocated, Take-back Debt Structure Modified, Rights Offering Scrapped

Amended Plan
DS Supplement
Supplemental Disclosure Motion

As previewed at a Nov. 18 status conference, the GTT Communications debtors filed an amended chapter 11 plan and disclosure statement supplement on Sunday, Nov. 27, reflecting negotiations between the company, the ad hoc lender group, the ad hoc noteholder group and various Lone Star funds, which according to the filings acquired a “significant amount” of prepetition term loans during the cases and, as a result, is anticipated to be the reorganized debtors’ “largest shareholder.”

The negotiations resulted in a newly disclosed amendment to the restructuring support agreement with holders of over 90% of 2018 credit facility claims and over 76% of senior notes claims, which provides for the following modifications to the debtors’ prepackaged plan initially confirmed in December 2021:
 

• The retention by the debtors of approximately $83 million in deferred consideration from the prepetition sale of the company’s infrastructure division to I Squared Capital instead of such funds being paid to holders of 2018 credit facility claims, but with the amount to be capitalized in the new OpCo term loan facility discussed below;
   
• A reduction in the principal amount of the new GTT term loans from $854 million to $783 million, which would be split into two term loan facilities: (i) an approximately $350 million secured HoldCo term loan facility for which the reorganized parent would be the borrower and (ii) an approximately $433 million secured OpCo term loan facility including both a U.S. and Euro tranche, which would consist of $350 million plus the capitalized I Squared deferred consideration and capitalized adequate protection payments deferred under the Sep. 20 cash collateral stipulation;
  • Interest on the new GTT term loan facilities would be paid in kind;
     
• Reallocation of new equity interests as between 2018 credit facility claims and senior notes claims, with credit facility claims to receive 94.5% of new equity (previously 88%) and noteholders to receive 5.5% (previously 12%); and
   
• The elimination of the $50 million new equity rights offering previously available to noteholders.
   

As a result of the modifications, Class 3 2018 credit facility claims are projected to recover 69.9% (previously 99.2%) and Class 4 noteholder claims are projected to recover 2.7% (previously 17.5%). The amended plan does not alter treatment or estimated recoveries for the remaining classes and Class 5 general unsecured claims remain unimpaired. As a result, the debtors propose to re-solicit votes only from Class 3 and Class 4 claims.

The DS supplement includes a new valuation analysis prepared by TRS Advisors, the debtors’ investment banker, which estimates the reorganized debtors’ enterprise value to be between $870 million and $1.01 billion, with a midpoint valuation of $940 million. This is down from the debtors’ previous $1.4 billion assumed enterprise value. A separate story will follow with a full summary and analysis of the debtors’ revised financial projections, valuation analysis and liquidation analysis.

The altered structure of the new GTT term loans is summarized in the “amended new GTT term loan term sheet” annexed to the DS supplement.

As previously reported, the telecom company’s plan modifications were necessitated by delays in obtaining regulatory approvals necessary for plan effectiveness, and the resulting impact on the debtors’ liquidity profile. The DS supplement reports some progress toward obtaining the last remaining regulatory approval from the California Public Utilities Commission, or CPUC. The debtors state that on Monday, Nov. 21, a CPUC administrative law judge released a proposed decision approving the debtors’ application and that CPUC has scheduled a hearing on Thursday, Dec. 1, to consider the proposed decision.

The debtors will seek conditional approval of the DS supplement at a hearing tomorrow, Tuesday, Nov. 29, at 10 a.m. ET. The debtors propose the following schedule for confirmation of the amended plan:
 
Additional changes to the plan include the inclusion of Lone Star in the plan’s release and exculpation provisions and post-emergence governance changes set forth in a “supplemental governance term sheet” annexed to the DS supplement, which provides for modifications to the new board. The proposed new board would consist of either eight or nine directors instead of seven as previously contemplated, as follows:
 

• Anthony M. Abate as executive chairman;
   
• GTT CEO Ernest Ortega;
   
• Sherman Edmiston III, a noteholder designee;
   
• One director designated by the four largest required consenting 2018 credit facility lenders;
   
• “[O]ne (1) or two (2)” directors designated by Lone Star; and
   
• Three independent directors.
   

The identities of the remaining members of the new board would be disclosed in a forthcoming plan supplement. As before, the proposed management incentive plan, or MIP, would consist of up to 10% of new equity interests determined on a fully diluted basis. The amended plan now provides that the new board may determine that the MIP pool may consist of equity interests in GTT RemainCo LLC in lieu of new equity interests subject to certain conditions.

Treatment of Claims and Interests

Below is a chart of the plan’s classes, along with their impairment status and voting rights, which remains unchanged from the prior iteration:
 
The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests (with revisions shown in bold):
 

• Class 1 - Other secured claims: Each holder would receive (i) payment in full in cash, (ii) reinstatement or (iii) such other treatment so as to render the claim unimpaired.
  • Projected recovery rate: 100%.
     
• Class 2 - Other priority claims: Each holder would receive payment in full in cash or such other treatment so as to render the claim unimpaired.
  • Projected recovery rate: 100%.
     
• Class 3 - 2018 credit facility claims: Each holder would receive its pro rata share of the following:
  • The “new GTT term loans” in the reduced amount of approximately $783 million (previously $854 million), consisting of the following term loan facilities: (i) an approximately $350 million secured HoldCo term loan facility for which the reorganized parent would be the borrower and (ii) an approximately $433 million secured OpCo term loan facility including both a U.S. and Euro tranche, which would consist of $350 million plus the capitalized I Squared deferred consideration and capitalized adequate protection payments;
    • The plan provides that distributions regarding new GTT OpCo term loans attributable to the capitalized adequate protection payments “will be made based on allocations as if postpetition interest at the default rate accrued during the pendency of the Chapter 11 Cases on each of the 2020 [Europe, Middle East and Africa] Term Loans, the Revolving Loans, the Original EMEA Term Loans and the U.S. Term Loans and at the contract rate with respect to Hedging Obligations (net of adequate protection payments already paid to Holders of 2018 Credit Facility Claims)”;
  • 94.5% of pre-dilution reorganized equity (previously 88%), subject to dilution by the MIP and warrants;
  • Any “excess cash,” meaning cash in the amount of the lesser of (a) the amount by which effective date liquidity exceeds $100 million and (b) the amount by which the aggregate amount of cash and cash equivalents (including any retained cash proceeds and excluding restricted cash) of the reorganized company parties and their direct and indirect nondebtor subsidiaries on the plan effective date exceeds $25 million. The I Squared deferred consideration is excluded from the definition of excess cash.
  • The 2018 credit facility claims would be deemed allowed as of the plan effective date in the following amounts:
    • U.S. term loan claims: Aggregate principal amount of $870,394,353.81, “plus all other amounts” constituting U.S. term loan claims;
    • Revolving claims: Aggregate principal amount of $38,130,907.46, “plus all other amounts” constituting revolving claims;
    • Hedging claims: Aggregate amount of $26,073,009.23;
    • Original EMEA term loan claims: Aggregate principal amount of $435,565,988.07 “plus all other amounts” constituting original EMEA term loan claims; and
    • 2020 EMEA term loan claims: Aggregate principal amount of $70,093,110.06, “plus all other amounts” constituting 2020 EMEA term loan claims.
    • The DS supplement estimates the pro rata split of new GTT term loans among the various prepetition lender claims as follows:

 

• Projected recovery rate: 69.9% (previously 99.2%).

• Class 4 - Senior notes claims: Each holder would receive its pro rata share of the following:
  • 5.5% of pre-dilution reorganized equity (previously 12%);
  • Warrants for 15% of the new equity interests (previously 30%), as further detailed in the amended noteholder warrant term sheet attached to the DS supplement as Annex 2; and
  • As mentioned above, the amended plan eliminates the $50 million new equity rights offering, which was part of the noteholder recoveries under the prior plan.
  • Projected recovery rate: 2.7% (previously 17.5%).
     
• Class 5 - General unsecured claims: Each holder would receive either full satisfaction of its claim in the ordinary course of business or payment in full in cash.
  • Projected recovery rate: 100%.
     
• Class 6 - Vacant.
   
• Class 7 - Intercompany claims: Subject to the restructuring transactions, each intercompany claim would be adjusted, reinstated or canceled and released without any distribution.
  • Projected recovery rate: 100%/0%.
     
• Class 8 - Intercompany interests: Subject to the restructuring transactions, each intercompany interest would be adjusted, reinstated or canceled and released without any distribution.
  • Projected recovery rate: 100%/0%.
     
• Class 9 - Existing GTT equity interests / section 510(b) claims: Each holder would receive its pro rata share of the equityholder warrants, which would be exercisable for 4.9% of the equity of reorganized GTT, as further detailed in the amended equityholder warrant term sheet attached to the DS supplement.
  • Projected recovery rate: NA.