Federal court issues $310 million judgment in favor of bondholders that could push Windstream into bankruptcy
The future of Windstream Holdings, the parent company of carrier and service provider Windstream, is up in the air following a U.S. federal court ruling in favor of bondholders that the company improperly transferred assets and is liable for at least $310 million in unpaid bonds.
The Lowdown: Windstream lost the court case against Aurelius Capital Management in July 2018, when the federal court determined that the 2015 spin-off of Uniti Group essentially stripped the company of assets that provided security for bonds issued by Aurelius. The transfer, Aurelius argued and the court confirmed, was tantamount to a default on bonds that weren’t due until 2023.
The federal court dismissed Windstream’s countersuit to block the legal actions of Aurelius and declare its spin-off of Uniti not in breach of the asset transference restriction.
UPDATE (February 18): Windstream announced the postponement of its 2018 fourth quarter and full year financial results following the court’s judgment. The earnings announcement was scheduled for February 21. The company said it would release its financial results no later than March 18.
The Details: According to published reports and court records, Windstream issued bonds in 2013 that included a clause preventing the company from transferring and leasing back operational and strategic assets. If it undertook such action, the contract stipulated that Windstream would be in breach and the bonds would mature immediately.
In 2015, Windstream spun off Uniti, which handles the copper and fiber network of Windstream’s services in 18 states. According to court documents, Windstream called the Uniti assets “essential” to its service delivery operations. Windstream leased that infrastructure back, which triggered Aurelius and other asset holders to file the lawsuit.
The Impact: The court ruled Windstream must pay $310 million for the value of the bonds, plus interest from July 2018. Aurelius and adjoined parties in the lawsuit will file proposed judgments as soon as Feb. 25.
At an investor conference in December 2018, Windstream CFO Robert Gunderman said the company was looking forward to the final judgment in the case so it could move forward with its refinancing.
Previously, according to Bloomberg, Windstream warned that a judgment for the immediate payment of the bonds could push the company into bankruptcy or liquidation.
Windstream’s fate is uncertain, but no immediate action is expected. Aurelius could see a structured settlement of the bonds rather than an immediate one. And Windstream is expected to appeal the ruling.
The Buzz: “We are disappointed in, and frankly surprised by, the ruling and will be taking immediate steps to pursue all available options, including post-trial motions and an appeal,” said Windstream CEO Tony Thomas in a statement released Feb. 15. “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.”