Item 1.01. Entry into a Material Definitive Agreement.
Background
As previously disclosed, the filing by GTT Communications, Inc. (the “Company”) of its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020 (the “Late SEC Report”) has been delayed. The failure of the Company to file the Late SEC Report on or before November 1, 2020 would constitute an event 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 (the “Trustee”).
If an event of default under the Indenture relating to the Late SEC Report occurs, then the Trustee or the holders (the “Noteholders”) of not less than 25% in aggregate principal amount of the Company’s outstanding 7.875% Senior Notes due 2024 (the “Notes”) may declare all unpaid principal of, premium, if any, and accrued interest on, all Notes to be due and payable immediately by providing a notice of acceleration (a “Notice of Acceleration”). In the event the Company receives a Notice of Acceleration, the holders of a majority in aggregate principal amount of the Notes may rescind and annul any declaration of acceleration and its consequences if certain conditions specified in the Indenture are satisfied, including the waiver by holders of a majority in aggregate principal amount of the Notes of, or cure of, the events of default that are the basis for the Notice of Acceleration.
In addition, as previously disclosed, the Company’s failure to deliver its consolidated financial statements for the fiscal quarter ended June 30, 2020 on or before October 30, 2020 would constitute an event of default under 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., as borrowers (the “Borrowers”), KeyBank National Association, as administrative agent and letter of credit issuer (the “Agent”), and the lenders (the “Lenders”) and other financial institutions party thereto from time to time. Upon an event of default under the Credit Agreement which is not cured or waived, the Credit Agreement permits, among other remedies, the Agent (in its own discretion or upon written request by Lenders holding a majority of the outstanding loans and revolving commitments under the Credit Agreement) to declare all principal, interest and other obligations thereunder immediately due and payable.
The foregoing summary of terms and provisions of the Indenture and the Credit Agreement is qualified in its entirety by reference to the full text of the Indenture and the Credit Agreement.
Notes Forbearance Agreement
On October 28, 2020, the Company and the guarantors under the Indenture entered into a Forbearance Agreement (the “Notes Forbearance Agreement”) with certain beneficial owners (or nominees, investment managers, advisors or subadvisors for the beneficial owners) (the “Forbearing Noteholders”) of a majority of the outstanding aggregate principal amount of Notes. Pursuant to the Notes Forbearance Agreement, the Forbearing Noteholders 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 defaults and events of default that have occurred, or that may occur as a result of, (i) the Company’s failure to timely file the Late SEC Report and the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2020 (the “Q3 SEC Report”) and (ii) the occurrence and continuance of the “Lender Specified Defaults” as defined in the Credit Facilities Forbearance Agreement (as defined below).
In addition, in the event that the Trustee or any Noteholder or group of Noteholders takes any action to declare all of the Notes immediately due and payable, the Forbearing Noteholders agree to deliver written notice to the Trustee to rescind and annul such acceleration and its consequences and to provide the necessary consents to amend the Indenture to provide that the Indenture shall not require cure or waiver of any events of default that are specified defaults in the Notes Forbearance Agreement in connection with rescinding and annulling such acceleration and its consequences.
The Notes Forbearance Agreement requires that the Company enter into the Fourth Supplemental Indenture, as defined and described below. The Notes Forbearance Agreement also requires the Company to provide certain advisors to the Forbearing Noteholders with 13-week cash flow forecasts and variance reports on a weekly basis and to host conference calls every other week with such advisors to discuss cash flows, operations, the status of the pending infrastructure sale transaction announced by the Company on October 16, 2020 (the “Transaction”) and other information reasonably requested by such advisors.
The forbearance period under the Notes Forbearance Agreement ends on the earlier of 5:00 p.m., New York City time, on November 30, 2020 (the “Expiration Time”) and the receipt of notice regarding intent to terminate the Notes Forbearance Agreement from Forbearing Noteholders upon the occurrence of any of the specified forbearance defaults described therein. The forbearance defaults include, without limitation, (i) the termination of the purchase agreement related to the Transaction;
(ii) the occurrence of any defaults or events of default under the Indenture other than any of the specified defaults in the Notes Forbearance Agreement, (ii) amendments to the Credit Agreement that require the payment of additional interest and/or compensation to the Lenders or amendments to the prepayment provisions of the Credit Agreement that are adverse to the Forbearing Noteholders; (iii) the Company or its subsidiaries (A) incurring indebtedness for borrowed money or providing certain guarantees of indebtedness, (B) causing certain subsidiaries that are not credit parties under the Credit Agreement to become credit parties or causing certain subsidiaries to provide credit support for certain obligations under the Credit Agreement, (C) transferring assets or equity interests of the Company or the guarantors under the Indenture to a subsidiary that does not become a guarantor, outside of the ordinary course of business or (D) granting certain liens; (iv) subject to certain exceptions, converting the loans under the Credit Agreement to base rate loans; (v) breaches of the Notes Forbearance Agreement by the Company; or (vi) the end of the forbearance period under the Credit Facilities Forbearance Agreement (as defined below).
In connection with the entry into the Notes Forbearance Agreement, the Company is paying certain fees of the advisors to the Forbearing Noteholders and is paying each Forbearing Noteholder a fee (the “Notes Forbearance Fee”) equal to $1.67 per $1,000 principal amount of Notes held by such Forbearing Noteholder. The Company also agreed to pay the Notes Forbearance Fee to any other holder of Notes who executes and delivers the Notes Forbearance Agreement on or prior to November 11, 2020 (except with respect to Notes transferred by a Forbearing Noteholder).
Credit Facilities Forbearance Agreement
On October 28, 2020, the Borrowers and certain of the guarantors of the obligations under the Credit Agreement entered into a Forbearance Agreement (the “Credit Facilities Forbearance Agreement” and, collectively with the Notes Forbearance Agreement, the “Forbearance Agreements”) with (i) certain Lenders (the “Forbearing Lenders ”) party to the Credit Agreement holding (A) a majority of the outstanding loans and revolving commitments under the Credit Agreement and (B) a majority of the revolving commitments under the Credit Agreement and (ii) the Agent. Pursuant to the Credit Facilities Forbearance Agreement, the Forbearing Lenders have agreed to, among other things, forbear from exercising any and all rights and remedies under the Loan Documents (as defined in the Credit Agreement) and applicable law, including not directing the Agent to take any such action, with respect to defaults and events of default that have occurred, or that may occur as a result of, (x) the Company’s failure to timely file the Late SEC Report and the Q3 SEC Report, (y) any amendment, supplement, modification, restatement and/or withdrawal or public statement of non-reliance on (1) any audit opinion related to historical consolidated financial statements or (2) historical consolidated financial statements and (z) the occurrence and continuance of the “Noteholder Specified Defaults” as defined in the Notes Forbearance Agreement.
The Credit Facilities Forbearance Agreement requires the Borrowers to provide Lenders who have agreed to receive material non-public information with 13-week cash flow forecasts and variance reports on a weekly basis and to host conference calls every other week with such Lenders to discuss cash flows, operations, the status of the Transaction and other information reasonably requested by such Lenders. In addition, the Credit Facilities Forbearance Agreement prohibits the Company from borrowing revolving loans and/or requesting the issuance of letters of credit if the aggregate amount of all outstanding revolving loans and/or issued and outstanding letters of credit would exceed 30% of the revolving commitments in effect as of the forbearance effective date (excluding all letters of credit that are issued and outstanding as of the forbearance effective date and letters of credit that are cash collateralized or backstopped) (the “Revolving Commitment Cap”), without the consent of each revolving lender. The Credit Facilities Forbearance Agreement further provides that the revolving commitments will be automatically and permanently reduced to equal the Revolving Commitment Cap upon the earlier to occur of the end of the forbearance period (after giving effect to all extensions thereof) and the entry by the Company into any transaction pursuant to which the liens on the U.S. collateral securing the U.S. obligations under the Credit Agreement are subordinated in right of priority to liens on the U.S. collateral securing any other debt or the U.S. obligations under the Credit Agreement are subordinated in right of payment to the prior payment in full of any other debt.
The forbearance period under the Credit Facilities Forbearance Agreement ends on the earlier of the Expiration Time and the receipt of notice regarding intent to terminate the Credit Facilities Forbearance Agreement from Forbearing Lenders upon the occurrence of any of the specified forbearance defaults described therein. The forbearance defaults include, without limitation, (i) the termination of the purchase agreement related to the Transaction; (ii) the occurrence of any event of default under the Credit Agreement other than any of the specified defaults in the Credit Facilities Forbearance Agreement; (iii) amendments to the Indenture or the Notes that require the payment of additional interest and/or compensation to the Noteholders or amendments to prepayment provisions of the Indenture or Notes that are adverse to the Forbearing Lenders; (iv) the Company or its subsidiaries (A) incurring indebtedness for borrowed money or providing certain guarantees of indebtedness, (B) transferring assets or equity interests of credit parties under the Credit Agreement to non-credit parties, outside of the ordinary course of business or (C) granting liens to secure the Notes; (v) breaches of the Credit Facilities Forbearance Agreement by the Company; (vi) non-pro rata purchases of loans funded with the proceeds of indebtedness issued by the Company or any other credit party under the Credit Agreement; or (vii) the end of the forbearance period under the Notes Forbearance Agreement.
In connection with the entry into the Credit Facilities Forbearance Agreement, the Company is paying certain fees of the advisors to the Forbearing Lenders and is paying each Forbearing Lender a fee equal to 0.167% of the sum of such Forbearing Lender’s revolving commitment and outstanding term loans.
The foregoing description of the Forbearance Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the Notes Forbearance Agreement and the Credit Facilities Forbearance Agreement, respectively, copies of which are filed herewith as Exhibits 10.1 and 10.2 and incorporated herein by reference.
Supplemental Indenture
On October 28, 2020, the Company entered into a Fourth Supplemental Indenture to the Indenture (the “Fourth Supplemental Indenture”), by and among the Company, the guarantors under the Indenture and the Trustee. The Fourth Supplemental Indenture amends the events of default provision in Section 6.01 of the Indenture to preclude the Company from curing an event of default for the failure to comply with the time periods prescribed in the reporting covenant in Section 4.15 of the Indenture with regard to the Late SEC Report by filing the Late SEC Report with the Securities and Exchange Commission (the “Q2 2020 Financial Reporting Amendment”). Notwithstanding the Q2 Financial Reporting Amendment, holders of a majority in aggregate principal amount of the Notes would have the ability to waive an event of default for the failure to comply with the time periods prescribed in Section 4.15 of the Indenture with regard to the Late SEC Report.
The foregoing description of the Fourth Supplemental Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the Fourth Supplemental Indenture, a copy of which is filed herewith as Exhibit 4.1 and incorporated herein by reference.
Indemnification Agreements
On October 27, 2020, the Board of Directors of the Company approved the entry into indemnification agreements in substantially the form attached as Exhibit 10.3 to this Current Report on Form 8-K (the “Indemnification Agreement”), with each director serving on the Company’s board of directors and each current executive officer of the Company.
Under the Indemnification Agreement, the Company agrees to indemnify each director and executive officer against any and all expenses to the fullest extent permitted by the laws of the State of Delaware, if the director/executive officer was, is, becomes or is threatened to be made a party to or witness or other participant in a claim or proceeding by reason of or arising in part out of the director’s/executive officer’s service as a current or former director, officer, employee, partner, member, manager, trustee, fiduciary or agent of the Company or any of its subsidiaries. The Indemnification Agreement also provides for, among other things, the advancement of expenses reasonably incurred by the director/executive officer prior to final disposition of any claim or proceeding that relates to the Company indemnification obligations, subject to reimbursement in the event such director/executive officer is ultimately determined not to be entitled to indemnification under the terms of the Indemnification Agreement and applicable Delaware law, and the maintenance by the Company of director and officers’ liability insurance covering the director/executive officer. In addition, the Indemnification Agreement provides procedures for the determination of the director’s/executive officer’s right to receive indemnification. Under the Indemnification Agreement, the director/executive officer will be eligible for indemnification during the period of his or her service as a director, officer, employee, partner, member, manager, trustee, fiduciary or agent until the later of (i) ten years thereafter, (ii) the expiration of the statute of limitations applicable to any claim that could be asserted against the director/executive officer to which such director/executive officer may be entitled to indemnification and/or an expense advance under the Indemnification Agreement and (iii) one year after the final determination of any proceeding against the director/executive officer in respect of which such director/executive officer is granted rights of indemnification or the right to an expense advance under the Indemnification Agreement.
The foregoing description of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Indemnification Agreement, a copy of which is filed herewith as Exhibit 10.3 and incorporated herein by reference.