Windstream Postpones Quarterly Results As Hedge Fund Claims Victory

Windstream Postpones Quarterly Results As Hedge Fund Claims Victory
Technicians work at the Windstream Corp. data center in Little Rock. (Trent Ogle)

Windstream Holdings Inc. of Little Rock is postponing its fourth-quarter and full-year 2018 financial results after a federal judge's ruling last week put the company in danger of bankruptcy.

The publicly traded telecommunications company planned to release results Thursday. It now says it will release results "no later than March 18."

The move comes after U.S. District Court Southern District Judge Jesse Furman ruled Friday in favor of hedge fund Aurelius Capital Management of New York, which alleged that Windstream's 2015 spinoff of its copper and fiber assets into a real estate investment trust violated the terms of some of its outstanding bonds.

Windstream executives had expressed confidence amid the legal wrangling, but also warned that, should the court rule find it in technical default on the bonds, the company could be on the hook to repay bondholders immediately or forced into bankruptcy.

Furman's Friday ruling leveled a $310 million judgment against Windstream. In its legal filings, Windstream has alleged that, "Aurelius acquired its position" as bondholders "for the sole purpose of seeking to manufacture this alleged default, and declare that a credit event has occurred or is occurring, in order to collect a credit default swap payoff."

The spinoff is publicly traded Uniti Group Inc. of Little Rock, led by CEO Kenny Gunderman and originally called Communication Sales & Leasing Inc. On Tuesday, Gunderman issued a statement noting that Uniti was not party to the litigation, and that its master lease agreement with Windstream "was not impacted by the ruling, and access to our network remains critical to Windstream's operations and its ability to serve its customers.

"We are focused on working through the challenges related to the court ruling and continue to be committed to serving the interest of our stockholders, our customers, and our other partners," Gunderman said.

In his ruling, Furman found the financial maneuvers surrounding the spinoff, and the company's arguments defending it, "too cute by half."

"That is, the 2015 Transaction qualifies as a Sale and Leaseback Transaction because, in substance, the Transferor Subsidiaries sold the Transferred Assets and then, either directly or indirectly, leased them back; making Holdings the sole signatory on the Master Lease did not change those facts," the judge wrote.

More: Read the judge's ruling.

On Friday, Windstream CEO Tony Thomas said the company was "disappointed" and "frankly surprised" by the ruling and said executives would pursue "all available options, including post-trial motions and an appeal.

"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."

On Tuesday, Aurelius posted its own response to Furman's ruling, issuing a news release that began with previous statements from Thomas and Gunderman to shareholders saying they expected Windstream to win the lawsuit. 

"We take no pleasure in Windstream's resulting financial predicament," Aurelius said. "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. 

"In our view, a management and a board with an extreme and unwarranted assessment of Windstream's legal case chose to bet the company. The company lost."

Shares of Windstream (Nasdaq: WIN) fell by more than 60 percent on Tuesday, the first trading day after the ruling; markets were closed on Monday in observance of President's Day. On Wednesday, shares were down by more than 2 percent to around $1.28.

Windstream, itself a spinoff of the old Alltel Corp. of Little Rock, reported $5.8 billion in revenue in 2017. It employs about 13,000 companywide, including about 1,200 at Arkansas.

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