Event Publicly Available Information:
Windstream in Peril After Losing Default Ruling to Aurelius (3)
2019-02-16 03:49:52.282 GMT
By Allison McNeely and Tiffany Kary
(Bloomberg) -- The fate of Windstream Holdings Inc. was
cast into doubt after a court ruled that the rural phone company
defaulted on its bonds in 2015 by spinning off Uniti Group Inc.
Windstream shares fell as much as 43 percent in extended
trading.
The ruling on Friday in Manhattan federal court is a
victory for New York hedge fund Aurelius Capital Management LP,
which contends that the deal unfairly stripped bondholders of
assets that back up their investment. Windstream, which serves
about 1.4 million consumers and small businesses in 18 states,
has warned that a defeat could force it to seek bankruptcy
protection or liquidation.
Actions by the company’s Windstream Services unit breached
covenants of bonds it issued, and Aurelius is entitled to a $310
million judgment, Judge Jesse Furman said in the decision.
Little Rock, Arkansas-based Windstream said in a statement that
it was pursuing options including an appeal.
“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,”
Tony Thomas, Windstream’s president and chief executive officer,
said in the statement.
Representatives for Uniti and Aurelius didn’t respond to
messages seeking comment. Uniti’s shares also fell more than 20
percent in late trading.
Surprise Verdict
With the company looking to appeal “any consequences are
unlikely to happen in the very near term,” said Matthew Dolgin,
an analyst who follows Windstream for Morningstar Inc. “If the
verdict was upheld throughout all potential appeals, we think
there is a reasonable probability that Windstream would be
forced into bankruptcy.” Customers probably won’t notice major
effects, with the company more likely to reorganize than
liquidate, Dolgin said.
Furman also dismissed Windstream’s counterclaims against
Aurelius, saying that the company’s “financial maneuvers — and
many of its arguments here — are too cute by half.”
Investors had been waiting for a verdict for months
following a trial that ended in July, with repeated assurances
from management that Windstream was confident it would get a
favorable verdict. “We clearly look forward to getting that, so
we can get on to refinancing the balance sheet,” Chief Financial
Officer Robert Gunderman said at a Dec. 5 investor conference.
Tenacious Opponent
Aurelius, led by Mark Brodsky and known as one of the most
tenacious distressed-debt investors, has been pressing for
immediate repayment on Windstream bonds it holds. The fund
stands to profit on any notes it bought at a discount, and
possibly derivatives known as credit-default swaps that pay off
if a company fails to honor its debts.
That could happen because the default ruling may entitle
holders of other Windstream bonds and loans to demand immediate
repayment, too, a scenario that could leave the company
insolvent.
The case began in 2017, when Aurelius alleged a default on
Windstream’s 6.375 percent senior notes due 2023. The hedge fund
held more than 25 percent of the notes affected, with more than
$310 million estimated at stake in principal and interest.
At the core of the dispute is how Windstream handled the
transfer to Uniti of assets including miles of copper wire and
fiber optic cables. Aurelius and the trustee, U.S. Bank National
Association, say the deal constituted a sale and leaseback
transaction, which was prohibited by the indenture on the notes.
Aurelius will confer with the other parties involved and
draft a proposed judgment by Feb. 25, according to the ruling.
The case is U.S. Bank v. Windstream Services, 17-cv-07857,
U.S. District Court, Southern District of New York (Manhattan).
--With assistance from Josh Saul and Olga Kharif.
To contact the reporters on this story:
Allison McNeely in New York at amcneely@bloomberg.net;
Tiffany Kary in New York at tkary@bloomberg.net
To contact the editors responsible for this story:
Rick Green at rgreen18@bloomberg.net;
Shannon D. Harrington at sharrington6@bloomberg.net