Windstream: Disappointed, Surprised by $310M Ruling - Southern Business Review


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Monday, February 18, 2019

Windstream: Disappointed, Surprised by $310M Ruling

Windstream Holdings Inc. President and CEO Tony Thomas said in a statement late Friday that the Little Rock company was "disappointed" and "frankly surprised" by a federal court ruling in New York that slapped a $310 million judgment on the publicly traded telecommunications firm.

U.S. District Court Southern District Judge Jesse Furman ruled 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.

More: Read the judge's ruling.

The spinoff is publicly traded Uniti Group Inc. of Little Rock, led by CEO Kenny Gunderman and originally called Communication Sales & Leasing Inc. Bloomberg reports that Windstream shares fell by 43 percent and that Uniti shares fell by more than 20 percent after the ruling was announced.

Thomas said Friday that Windstream "will be taking immediate steps to 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."

Arkansas Business reported in 2017 that, should the court rule find Windstream in technical default on the bonds, the company could be on the hook to repay bondholders immediately or forced into bankruptcy.

Aurelius has claimed that the Windstream's spinoff was essentially a sale-leaseback, violating terms of some of the bonds. The dispute also involves Aurelius' bond trustee, U.S. Bank, and a counterclaim by Windstream.

In his ruling, Furman found the financial maneuvers surrounding the spinoff, and the companies 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. 

In its complaint, Windstream alleges that, "Aurelius acquired its position in the Notes 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 Financial Times reported that analysts at research firm CreditSights were surprised the credit default swap "ploy" was "scarcely addressed" in the ruling.

"We, along with others in the market, found Windstream's arguments that Aurelius pursued this litigation in bad faith and in order to ensure a payout on its CDS to be compelling," the analysts said.