Corporate Finance

Windstream Files Chapter 11 After Bond Default

The filing follows a court ruling that the broadband provider violated bond covenants when it spun off its fiber-optic cable network.
Matthew HellerFebruary 26, 2019
Windstream Files Chapter 11 After Bond Default

Rural broadband provider Windstream has filed for bankruptcy in response to a court ruling that it violated covenants on bonds.

The Feb. 15 decision in a case brought against Windstream by distressed-debt hedge fund Aurelius Capital Management put the bonds into default, triggering an acceleration of the maturities. The 6.375% senior notes had been due to mature in 2023.

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U.S. District Judge Jesse Furman in New York agreed with Aurelius that Windstream’s spinoff of its Uniti fiber-optic cable network in 2015 constituted a sale-and-leaseback transaction that was prohibited by a covenant on the notes. He also awarded the fund a judgment of $310 million.

“Following a comprehensive review of our options, including an appeal, the board of directors and management team determined that filing for voluntary Chapter 11 protection is a necessary step to address the financial impact of Judge Furman’s decision and the impact it would have on consumers and businesses across the states in which we operate,” Windstream CEO Tony Thomas said Monday in a news release.

The Little Rock, Ark.-based company said it will negotiate a reorganization plan with creditors and it has a received a commitment of $1 billion from Citigroup to finance its operations during the bankruptcy process.

“Windstream did not arrive in Chapter 11 due to operational failures and currently does not anticipate the need to restructure material operations,” Thomas said.

Windstream served more than 1 million residential internet customers in 18 states as of Sept. 30, 2018, reporting revenue of $1.42 billion and net income of $41 million for the third quarter. It also offers business and enterprise network services.

The legal battle with Aurelius focused on how Windstream handled the transfer to Uniti of assets including miles of copper wire and fiber optic cables. The hedge fund contended that the deal unfairly stripped bondholders of assets that back up their investment.

Aurelius, which held more than 25% of the affected senior notes, has been pressing for immediate repayment.

Photo: David Hoshor, Flickr, CC BY 2.0

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