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Windstream Bankruptcy: The Channel Saga’s Latest

Bankruptcy with Gavel

Windstream‘s chapter 11 bankruptcy filing has been the biggest ongoing story of 2019, and the drama’s far from over.

The communications giant says it had no intention of filing for bankruptcy and that it fully expected the U.S. District Court of the Southern District of New York to rule in its favor in its court battle against Aurelius Capital Management, a Windstream bondholder.

However, when the court sided with Aurelius, the writing was on the wall. The court ruled that Aurelius is entitled to a judgment of nearly $310.5 million, plus interest, after July 23, 2018. Meanwhile, Windstream has about $5.8 billion in outstanding bonds and loans.

There’s been a steady stream of developments since the filing, with analysts weighing in on what’s likely taking place behind the scenes. And partners, and employees in anonymous comments, have provided their feedback on how this has or is likely to impact them.

Ovum's Mike Sapien

Ovum’s Mike Sapien

Mike Sapien, Ovum’s vice president and chief analyst of enterprise services, tells Channel Partners the process seems to be going as expected and “I have not heard anything to the contrary.”

“[The] chapter 11 process can take many months to years,” he said. “There won’t be any public announcements until Windstream has negotiated with its major creditors and regulators on their exit plan. I suspect it will be many months due to the numerous parties involved including the regulatory agencies involved.”

During its first-quarter 2019 earnings call, Tony Thomas, Windstream’s president and CEO, said the reorganization process continues and “we are pleased with the progress thus far. Windstream will emerge from our current restructuring a healthier and stronger company. More than ever, we are excited about the opportunities that lie ahead.”

Scroll through our gallery below for all of the action that’s happened – including what you might have missed – since Windstream entered chapter 11.

Chapter 11 filing
Windstream Files Chapter 11

While not entirely surprising, Windstream stunned the channel in February by filing for chapter 11 bankruptcy protection after losing its court battle against Aurelius Capital Management, a Windstream bondholder that claimed breach of contract.

The court ruled that Aurelius is entitled to a money judgment of nearly $310.5 million, plus interest after July 23, 2018. Windstream has about $5.8 billion in outstanding bonds and loans.
Agent cuts
Immediate Reaction

Windstream's chapter 11 filing had the channel buzzing, with clients worried, agents bracing for potential commission reductions and master agents hoping for the best.

Shane Stark, Carrier Access’ vice president of vendor and channel relations, and a member of the Channel Partners Editorial Advisory Board, said his company received questions from some clients and “we’re seeking Windstream to get exactly what those answers are going to be.”

“In the past when that happened, there’s been no interruption of service, but anytime something like this happens, people start to wonder what’s going on,” he said. “Most of these folks come out of [bankruptcy] better than they went into it.”

In a video briefing prior to the filing, Adam Edwards, Telarus‘ CEO, said "we expect to continue to be paid, we expect that they’re going to want to continue to support their customers and they’ve said as much in a public statement."
Nasdaq delisting
Windstream Faces Stock Delisting, Congressman's Scorn 

In early March, the Securities and Exchange Commission removed Windstream’s common stock from listing and registration on the Nasdaq. The company's common stock then commenced trading on the OTC Bulletin Board or “pink sheets” market.

Also, Georgia Congressman Doug Collins accused Windstream of taking advantage of customers and taxpayers. Collins said the company has been “promising speeds they know they can’t meet and failing to provide consistent broadband service while collecting taxpayer dollars and receiving substantial federal tax breaks.”
Quarterly losses
Quarterly Losses Amid Chapter 11

In March, Windstream reported a $549 million loss, and a more than $100 million drop in revenue and sales for the fourth quarter of 2018 compared to the same quarter in 2017. And this week, it reported a $2.3 billion loss, and $133.7 million drop in revenue and sales for the first quarter of 2019 compared to the same quarter in 2018.

Revenue and sales totaled nearly $1.32 billion, down from $1.45 billion for the year-ago quarter. The communications giant reported a $121 million net loss in the year-ago quarter. Despite it all, the company beat Wall Street’s expectations.

Enterprise strategic sales continued to accelerate during the first quarter, representing more than 55 percent of total enterprise sales during the first quarter. Sales of strategic products and services, including SD-WANUCaaS and OfficeSuiteUC, now represent an annualized run rate of $250 million in revenue and are growing at 44 percent year-over-year.
Scare tactic
Windstream Fights 'Scare-Tactic' Campaign

A bankruptcy judge granted Windstream‘s request for a temporary restraining order barring Charter Communications from distributing an advertisement suggesting Windstream customers could lose service because of its chapter 11 bankruptcy. Windstream's suit alleged Charter engaged in a “scare-tactic” campaign to deceive customers into believing it would no longer provide services and was going to liquidate.

According to the Lincoln Journal Star, the ruling also ordered Charter to restore service to any Windstream customers who switched to Charter as a result of the advertisement.
Curt Allen
Windstream's Curt Allen Addresses Chapter 11

Windstream's Curt Allen

Windstream's Curt Allen

At last month's Channel Partners Conference and ExpoCurt Allen, Windstream Enterprise’s president of strategic channels, said his company planned to cut 15 percent of its partners who "haven’t sold anything in years," while increasing commissions for the remaining partners for selling strategic products.

"All of their legacy business will pay at [prior existing] commission rates, and the good news for all those partners is we’re increasing commissions," he said. "As we’re moving and we’re kind of this next-generation provider, we’re still getting that message that it’s about the solutions. And the network is an awesome vehicle to get us there; it’s SD-WAN and UCaaS, [but] we had an agreement and program that still felt like a legacy telecom. So we’re able to, for instance, strategic products, all of the partners in the program will get a 5 percent residual increase in that strategic product. So UCaaS, SD-WAN, security — they’ll get 5 percent above their normal residual for that. We’re also extending that to if they have an existing customer with us and they migrate them to SD-WAN, UCaaS, [and/or] CCaaS, they’ll get a 5 percent bump in commissions even on that existing customer. So it allows us to reimagine the program as more like that solutions provider that we are."
Expo reaction
Bankruptcy Hot Topic at #CPExpo

At last month’s Channel Partners Conference & Expo, we walked the expo hall floor and asked attendees to share their thoughts on this unexpected wave of bankruptcy filings by Windstream, Sungard Availability Services (Sungard AS) and potentially Fusion Connect. Needless to say, it wasn’t tough to get partners to open up.

Some fear their commissions will be impacted, while others talked about what’s driving some companies to chapter 11, and why bankruptcy could be a growing trend for the channel in the months ahead.

Michelle Doerr, Common Sense Technologies’ director of operations, said her company is going to be impacted because it works with Windstream and Fusion, while John Ashton, Public Telephone Co.’s vice president, said his company has been able to avoid “some of the downfall” that some of the other carriers are experiencing.
Rival poaching
Partner Poaching

DigitalPhone.io
 last month said it hopes to attract Windstream partners that are being cut from its partner program as part of its bankruptcy.

In a press release, DigitalPhone.io said partners that are cut from Windstream's program will “immediately see their commissions stop, regardless of how it negatively impacts their operations, cash flow projections, or reputations.” DigitalPhone.io also made the announcement via Twitter and Facebook.

“Apparently, Windstream has other items on the agenda at the moment than supporting channel partners who have been driving revenues and customers to the telecommunications company for years,” it said. “According to some current and ex-employees posting at TheLayoffs.com, one of these priorities is carrying out a ‘stealth layoff program’ that involves handing out a small number of pink slips over a long period of time, in order to avoid a public relations blowback. Join the DigitalPhone.io team!”

Windstream had no comment on DigitalPhone's claims.
Top exec bonuses
Bonuses to 'Motivate' Top Executives

This story had readers fuming: Windstream asked a Chapter 11 bankruptcy court to approve bonuses for its five most senior employees. The court approved the request this week.

Windstream hoped to maintain its Key Employee Incentive Program (KEIP), which would benefit President and CEO Tony Thomas, chief financial officer and treasurer Robert Gunderman, enterprise and wholesale president Layne Levine, Kinetic business unit president Jeff Small, and executive vice president, general counsel and corporate secretary Kristi Moody. The program will dole out a total of $20.1 million if the executives meet their performance requirements throughout 2019.
Readers react
Channel Chatter

Readers aren't shy when something gets their goat; for example, the $20 million in bonuses for top Windstream execs to "motivate" them prompted a barrage of comments.

"Why would they pay these morons more money for failing in the first place?" said one anonymous reader. "This is absurd and should not be done; we cannot already support the customers properly."

"This is pathetic," said another anonymous reader. "I say this as a longtime employee who is salaried and has not received a raise in four years while the CEO might get $10 million this year."

And another person, who identified themselves as an employee and goes by Nunya Damnbusiness, had this to say: "Our crooked CEO and his shameless cronies. How motivated do these criminals need to be to drive the company into the ground while outsourcing all the work out and laying everyone off?"
Intimidating notices
'Intimidating' Agreement Notices

Windstream partners got an unexpected shock this month in the form of a letter saying their current agreements are null and void, and they are required to sign new agreements or risk being cut off from commissions.

During a briefing at last month’s Channel Partners Conference & Expo, Curt Allen said the partner program included 31 standard agreements, “so the bankruptcy court has made it real clear that you’ve got to clean this up, this is a mess, and I firmly agree with them. So we’re going to consolidate everybody onto a single agreement.

One smaller master-agent representative, who asked not to be identified, said he has been working with Windstream for many years and his agreement included evergreen protections that are not part of the agreement he is being asked to sign. He also said the new agreement includes new sales and revenue requirements, and if they don’t sign, Windstream could either stop paying commissions or pay less than what was previously agreed upon.

He called the letter “intimidating” and “incredibly impersonal.”
What's next
What's Next?

Unlike Sungard AS, which filed and then exited chapter 11 within 24 hours, Windstream's chapter 11 process is expected to last several months. In the meantime, all eyes are on what the company will look like when it finally does emerge.

"It’s really an extension of what the vision was, this continued migration away from being primarily a legacy telco and more of a solutions provider with a dynamite network underneath it," Curt Allen said. "In some ways we could argue that this accelerates us there. Certainly we’ll have a different debt profile on the other side of this and you could argue it would be a lot more favorable than the one we had, so in ways that will free us up to more aggressively invest in the battles that we want to fight and win. So other than the headwind this year of running into that breeze of bankruptcy, as you get into 2020 and 2021 and beyond, this probably accelerates us to that next-generation provider that we’ve been pushing to be."

3 comments

  1. Al May 17, 2019 @ 5:50 am

    So Windstream will comes out with their debts absolved. What a big joke. Their services are the worst in the nation. Their reviews throughout the web tell the real story. We have had this monopoly scam company for years. Nothing but excuses and horrible internet service. You don’t ever get the speeds and service you are promised, EVER. I bet they want to have their debts absolved? How many others in America would like to have to their debts absolved and continue on. I think they should have to sell out and pay every dime they owe. The shouldn’t be allowed to file bankruptcy and continue business as usual. They sure don’t care about or support their customers. This is totally wrong.

    • James May 17, 2019 @ 7:06 am

      What this guy above said, they’ve had subpar equipment where we live for years, at my father’s we could barely even get windstream and it was normal for it to go off multiple times a day until dad finally turned it off completely, and my grandma has had them for over 10 years for phone service and the other week we were having service issues and they tried to tell me that they dont even offer the service that my grandma has anymore meanwhile her bill has shot up to over 90$ on just the last few months, this company along with spectrum have a monopoly on the Carolinas and it’s a joke

  2. Yolanda Morales May 17, 2019 @ 10:05 am

    So what all this mama is this there will no longer be windstream internet? Well I’ve only had it for less than a year bit they’ve been wonderful the internethad been working very well. Shop this is sad to hear.

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