The entire litigation process began when Windstream Holdings filed for bankruptcy in early 2019 after it lost a legal battle with Aurelius Capital Management over its spinoff off of Uniti Group back in 2015.
Aurelius Capital Management claimed that the creation of the new entity, which includes Windstream’s copper wire and fibre cable business, went against agreements it had with bondholders, including Aurelius Capital Management.
As part of the spinout, Windstream leases back the copper and fibre assets from Uniti to serve its customers at a cost of $54 million a month, $659 million a year.
A US district judge sided with Aurelius and awarded the firm $310 million. As a result, Windstream CEO Tony Thomas (pictured) said that the company “determined that filing for voluntary Chapter 11 protection is a necessary step to address the financial impact of (the) decision”.
This in turn had a domino effect on the lease agreement Windstream has in place with Uniti. Windstream accesses Uniti's network under a master lease that was due to expire in 2030.
As part of Windstream's Chapter 11 and reorganisation efforts, Windstream creditors UMB Bank and US Bank filed a motion in July 2019 saying that the payments were not lease arrangements but a financing agreement and should not be included in the bankruptcy proceedings. It added that Windstream should not be making rent payments to Uniti and instead should keep the funds to pay back its creditors.
In response to these claims Kenny Gunderman, president and CEO of Uniti said, “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 - otherwise it will not be able to operate its business.”
The two companies have now reached a settlement, that is said to be supported by 72% of Windstream’s outstanding first lien debt and more than one-third each of its second lien creditors and unsecured note holders. This includes affiliates of Elliott Management Corporation, Windstream’s largest creditor, as well as members of the ad hoc first lien Windstream creditors group.
Under the terms of the deal Uniti is to invest US$1.75 billion in growth capital improvements comprised of long-term fibre and related assets over the initial term of the New Leases. On the first anniversary of the initial investment for growth capital improvements, the annual base rent payable by Windstream will increase by 8%, subject to a 0.5% annual escalator, to name a few.
“This agreement has substantial strategic value for Uniti as it immediately allows the company to expand its national fibre footprint with approximately 450,000 new fibre strand miles and 1.8 million of existing fibre strand miles that are able to be leased by Uniti to a third party,” added Gunderman.
“The agreement also provides further expansion in the coming years for additional fibre deployment with our commitment to invest up to $1.75 billion of capital in Uniti-owned, Windstream-leased assets. Approximately 90% of our committed capital as part of the settlement agreement will be used to acquire or build new REIT eligible fibre assets with attractive yields. We look forward to a strong working relationship with Windstream as we focus on enhancing Windstream’s competitive position and the network Windstream leases from Uniti.”
“Our agreement with Uniti will provide substantial fibre-based network investments for Windstream to significantly expand 1 Gigabit internet service for consumers, positioning the company for sustainable growth and margin expansion upon emergence from restructuring,” added Thomas. “Our goal remains to emerge from restructuring as soon as possible under the best possible terms for Windstream and all our stakeholders.”
