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Hit with $310M Judgment, Windstream Files Chapter 11 Bankruptcy

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Windstream Holdings Inc. of Little Rock filed Chapter 11 bankruptcy on Monday, less than two weeks after a federal court judge found that the 2015 spinoff of its fiber and copper assets into a separate company ran afoul of bond covenants, exposing the company to a $310 million judgment.

In a news release, CEO Tony Thomas called the reorganization “a necessary step to address the financial impact” of the judge’s decision and “the impact it would have on consumers and businesses across the states in which we operate.” 

“Taking this proactive step will ensure that Windstream has access to the capital and resources we need to continue building on Windstream’s strong operational momentum while we engage in constructive discussions with our creditors regarding the terms of a consensual plan of reorganization,” Thomas said. “We acted decisively to secure the long-term financial stability of Windstream, and we are confident that, upon completion of the reorganization process, we will be even better positioned to invest in our business, expand our speed and capabilities for our customers and compete for the long term.”

Thomas said court approval of a reorganization plan will allow the company to continue paying its employees and maintain relationships with vendors, business partners and customers. It said it received a commitment from Citigroup Global Markets Inc. for $1 billion in debtor-in-possession financing that would help it meet its operational needs.

The firm said it would have more information on a website it set up for the restructuring. It filed the bankruptcy petitions in the U.S. Bankruptcy Court for the Southern District of New York.

More: See Windstream’s Chapter 11 bankruptcy filing.

Shares of Windstream (Nasdaq: WIN), which had already declined since the judge’s ruling, were down about 25 percent Monday to about 65 cents per share. Windstream, itself a spinoff of the old Alltel Corp. of Little Rock, employs about 13,000 companywide, including about 1,200 at Arkansas, and provides telecommunications and networking services to businesses and broadband Internet and entertainment services to consumers. It reported a $2.1 billion loss on $5.8 billion in revenue in 2017, and a loss of $173.8 million on revenue of $4.3 billion in the first three quarters of 2018.

Last week, in light of the court ruling, Windstream postponed its fourth-quarter and full-year 2018 financial results, originally scheduled for Feb. 21. It said it would release results “no later than March 18.”

U.S. District Court Southern District Judge Jesse Furman’s Feb. 15 ruling came in lawsuit brought by 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.

The spinoff is publicly traded Uniti Group Inc. of Little Rock, led by CEO Kenny Gunderman and originally called Communication Sales & Leasing Inc. Shares of Uniti (Nasdaq: UNIT) were up more than 11 percent Monday to $10.29 per share.

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

In its legal filings, Windstream 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.”

In comments after the ruling, Thomas said the company was “disappointed” and “frankly surprised” and said executives would pursue “all available options, including post-trial motions and an appeal. He said the firm would also work with creditors on the next course of action. 

Aurelius posted its own response to the ruling, saying Windstream could have “easily” averted the outcome “first by not playing fast and loose with its noteholders in 2015” 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,” Aurelius said. “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.”

Announcing the bankruptcy filing on Monday, Thomas stressed that it wasn’t “operational failures” that forced Chapter 11, and that Aurelius “engaged in predatory market manipulation to advance its own financial position.”

“While it is unfortunate that Aurelius engaged in these tactics to advance its returns at the expense of Windstream, we look forward to working through the financial restructuring process to secure a sustainable capital structure so we can maintain our strong operational performance and continue serving our customers for many years to come,” Thomas said.

Thomas, whose contract as CEO was extended on Friday to 2024, talked about the Uniti spinoff during an address to the Little Rock Rotary Club in 2016, as Windstream marked its 10th anniversary. He said the spinoff allowed Windstream to pay off $800 million in debt and improve its infrastructure.

“The idea sounds a little crazy the first 12 times you hear it, but once you hear it the 13th, it’s a compelling way to create value for our shareholders but also our customers,” Thomas said. 

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