Update: Uniti Group Says Windstream Should Continue Lease Payments

Update: Uniti Group Says Windstream Should Continue Lease Payments
Kenny Gunderman (Uniti Group)

Uniti Group Inc. of Little Rock responded Monday to a motion filed Friday by creditors of Windstream Holdings Inc. of Little Rock seeking to block Windstream from making lease payments to Uniti.

In a statement, Uniti said federal bankruptcy law requires Windstream to continue the payments during its Chapter 11 bankruptcy. It said Windstream has met its obligation so far.

"Uniti's relationship with Windstream is simple: Uniti owns the network that Windstream uses to service its customers, and Windstream must continue to pay rent in order to maintain access to the network," said Kenny Gunderman, Uniti's president and CEO. "Otherwise, it will not be able to operate its business. This latest effort by out-of-the money junior creditors of Windstream to extract value from Uniti does nothing to change that essential fact."

A Windstream spokesman said the publicly traded company pays Uniti $659 million per year to lease the infrastructure that powers its business. The lease to access fiber and copper assets from Uniti was signed in 2015, when Windstream spun off those assets into Uniti, a real estate investment trust. Windstream's spinoff of those assets are at the heart of its Chapter 11 bankruptcy, filed in February.

The motion for the lease payments to end was filed by creditors UMB Bank and U.S. Bank. They've requested a July 26 hearing on it.

The creditors argue that the lease is really a loan, which means payments can't continue during the bankruptcy. They said Windstream should be keeping that cash to pay creditors.

"Consistent with the views of Windstream's counsel and advisors when the lease was established, we believe that the lease is a true lease and will be respected and enforced as such, and we will vigorously contest any argument to the contrary," Gunderman said.

"As we have repeatedly said, we intend to be long-term partners for Windstream and we remain open to working with Windstream and its constituents on mutually beneficial modifications to the lease. We hope that Windstream and its constituents will focus on building a sustainable plan for Windstream's future rather than pursuing meritless litigation that gambles with the stability of the business and puts at risk the customers it serves."

Windstream has filed a preliminary objection to the motion, which states that it is "procedurally and substantively improper;" that Windstream has been "engaging in commercial discussions with Uniti regarding potential changes to the relationship between the parties and, correspondingly, amendments to the Master Lease;" and that Windstream holds "a compelling recharacterization claim related to the Uniti Master Lease."

The objection also insists that the motion should be withdrawn and that it was "filed without standing."

In addition, Windstream CEO Tony Thomas talked about the lease in May during the company's most recent earnings call.

"Windstream believes that the current rent under the Uniti master lease is significantly above market," he said then, noting that the company "is evaluating all options regarding the Uniti lease, including renegotiation, recharacterization, unwinding the lease, as well as an outright rejection of the lease."

(Correction: A previous version of this article stated that a July 19 hearing on the motion had been requested. A July 26 hearing was requested. Arkansas Business has corrected the error.)

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