Could Windstream be facing bankruptcy?
The U.S. District Court of the Southern District of New York on Friday ruled in favor of Aurelius Capital Management, a Windstream bondholder, saying the communication giant’s 2015 spinoff of copper and fiber assets into the Uniti Group real estate investment trust (REIT) breached their contract.
The court ruled that Aurelius is entitled to a money judgment of nearly $310.5 million, plus interest after July 23, 2018.
“If the wireline carrier business didn’t have enough problems already … from the sound of things, Windstream got overly creative in structuring that bond deal and now has to ‘pay the piper,'” said Channel Partners contributor Michael Finneran of dBrn Associates.
The decision arose from challenges by Aurelius and U.S. Bank National Association that the spinoff was invalid under the terms of those agreements.
“We are disappointed in, and frankly surprised by, the ruling and will be taking immediate steps to pursue all available options, including post-trial motions and an appeal,” said Tony Thomas, Windstream‘s president and CEO. “Additionally, we will work with our creditors on the next course of action. Windstream provides critical voice and data services to customers across the U.S. We remain committed to serving them and ensuring they realize the maximum benefit in transitioning to next-generation technology solutions and premium broadband services.”
Aurelius issued the following statement: “We take no pleasure in Windstream’s resulting financial predicament. Windstream could easily have averted it — first by not playing fast and loose with its noteholders in 2015, hoping nobody would hold the company to account, and second, by settling. Instead, Windstream wasted an exorbitant amount – more than would have been needed to settle with us at the time – on an ineffective exchange offer and then on litigation.”
Mike Sapien, Ovum’s vice president and chief analyst of enterprise services, said based on the monies due, bankruptcy “would be [a] potential response, but there are many other means that Windstream needs to investigate before that decision would be made.”
“And it is unclear to me how this debt would be shared by Uniti,” he said “But it does show how the transition to a REIT for telecom assets can make any judgment complex and hard for both parties involved. Aurelius also needs to be careful on how it demands payment so that its investment does not deteriorate from any potential bankruptcy.”
The ruling was “definitely a surprise but also certainly will cause many in telecom circles to rethink this idea to spin off assets into a REIT,” Sapien said. Other bondholders asking for payment remains a big risk for Windstream, he said.
“My view is that this was one of the risks that Windstream decided to take when they moved to transfer of assets into creating the REIT firm that became Uniti,” he said. “This was not mentioned much at all when Windstream created this new REIT entity.”