GTT Valens Credit Analysis – No Traded CDS, Base Case iCDS 316bps, Negative Case iCDS 555bps, 2027 6.750% Bond YTW of 6.466%, iYTW of 3.736%, B1 Rating from Moody’s, IG4 (equivalent to Baa2) Rating from Valens, Low Refinancing Need

• Credit markets are grossly overstating credit risk, with a cash bond YTW of 23.380%, relative to an Intrinsic YTW of 6.000% and an Intrinsic CDS of 559bps. Furthermore, Moody’s is overstating the firm’s fundamental credit risk, with its 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 Q4 2019 earnings call (3/2) highlights that management is confident their KPN acquisition deepened their cloud networking portfolio, that most clients are thinking about a transition to more effective network technology, and that their Infrastructure division is unique and focused on selling to carriers and OTT-like clients
• GTT currently trades below recent averages with an 18.0x Uniform P/E (V/E’). However, even at these levels, the market is pricing in expectations for Uniform ROA to improve from 9% in 2018 to 32% through 2023, accompanied by 4% Uniform Asset shrinkage going forward