GTT Valens Credit Analysis – No Traded CDS, Base Case iCDS 484bps, Negative Case iCDS 614bps, 2024 7.875% Bond YTW of 12.010%, iYTW of 6.900%, B2 Rating from Moody’s, XO- (equivalent to Ba1) Rating from Valens, High Refinancing Need

• Credit markets are grossly overstating credit risk, with a cash bond YTW of 12.010%, relative to an Intrinsic YTW of 6.900% and an Intrinsic CDS of 484bps. Furthermore, Moody’s is overstating the firm’s fundamental credit risk, with their highly speculative B2 credit rating four notches lower than Valens’ XO- (Ba1) credit rating
• Incentives Dictate Behavior™ analysis highlights positive signals for creditors. Specifically, GTT’s compensation metrics should focus management on all three value drivers: asset efficiency, margins, and top-line growth, leading to Uniform ROA expansion and increased cash flows available to service obligations. In addition, most management members are material owners of GTT equity relative to their average annual compensation, and management members have low change-in-control compensation, reducing event risk
• Earnings Call Forensics™ of the firm’s Q1 2019 earnings call (5/8) highlights that management is confident in the depth and breadth of their prospective acquisition opportunities, their focus on eliminating non-strategic acquired products, and their ability to sell high-capacity internet access, IT transit, and broadband internet services
• GTT currently trades below recent averages with a 16.1x Uniform P/E (V/E’). However, even at these levels, the market is pricing in expectations for Uniform ROA to improve from 13% in 2018 to 36% through 2023, accompanied by 3% Uniform Asset shrinkage going forward