Windstream sells half of its stake in CS&L, plans to pay down debt

Just over a year after spinning off Communications Sales & Leasing (CS&L) into a real estate investment trust (REIT), Windstream Holdings sold off half of its remaining stake in the state’s newest publicly traded concern to pay down debt, the Little Rock telecom said on Wednesday.

According to news releases by both of the closely-related Little Rock telecom companies, Windstream first announced that it had closed on a deal to transfer approximately 14.7 million shares of CS&L common stock to its creditors in a debt-for-equity exchange. Citigroup Global Markets Inc. then acquired those shares from the creditors and as selling shareholder, sold them to institutional accredited investors, including funds managed by Searchlight Capital Partners L.P.

In connection with the roundabout deal, Searchlight, as lead private investor of 10 million shares, was offered by right to designate one member to CS&L’s board of directors, provided that such designee is reasonably acceptable to CS&L. This designation right will terminate if Searchlight’s ownership drops below 5% prior to June 15, 2019 and or below 8% thereafter. CS&L said it did not receive any proceeds from the disposition of shares.

“Searchlight is a global private investment firm with deep expertise in the communications industry. We very much welcome Searchlight as a substantial shareholder, and look forward to the valuable insights and contributions their designee will bring to our board of directors,” said CS&L President and CEO Kenny Gunderman.

For its part in the deal, Windstream said the CS&L shares that were sold off represented nearly 50% of Windstream’s total retained stake in CS&L after the spin-off in April. Company officials said the proceeds were used to retire approximately $309 million in Windstream’s revolving credit facility debt and to satisfy transaction expenses.

Windstream said it also has retired $126 million in face value of debt for $100 million in cash funded by its revolving credit facility through open market debt repurchases since April. As a result of the combined transactions, the company has reduced debt by approximately $335 million to date in the second quarter.

Windstream also announced it now expects cash interest expense of approximately $375 million for 2016, compared to its previous estimate of $385 million.

“This transaction further optimizes our balance sheet,” said Bob Gunderman, Windstream chief financial officer. “Through open market debt repurchases and the initial CS&L monetization, we expect to drive an incremental $25 million in cash interest savings in 2017 compared to our revised guidance for 2016.”

Kenny Gunderman, the chief executive of CS&L, is the brother of the Windstream CFO.

CS&L ALMOST FREE OF WINDSTREAM’S PARENTAL TIES
Following the spinoff of CS&L in April 2015, Windstream retained a 20% equity stake in CS&L. Following the debt-for-equity exchange transaction, Windstream now holds approximately 14.7 million shares, or 10%, of CS&L. Windstream said it plans to dispose of the remaining shares in the future to further reduce debt and generate cash interest savings.

Last fall, the Little Rock telecom sold off its data center business in a cash deal worth $575 million to a St. Louis-based TierPoint LLC, which is partly owned by Little Rock’s Stephens Group LLC.

Now almost free of its ties to parent company Windstream, CS&L completed its first acquisition since becoming Arkansas’ initial publicly traded REIT with the $409 million purchase of PEG Bandwidth LLC last month. PEG, which is owned by Associated Partners LP, is a Lewisville, Texas-based operator of dark fiber and cell site backhaul assets for mostly rural telecom carriers and enterprises.

PEG’s network consists of more than 300,000 strand miles in the Northeast/Mid Atlantic, Illinois and South Central regions of the U.S.

Associated Partners is an investment and operating partnership managed by David and Bill Berkman. After the PEG deal close, Associated Partners’ managing director Scott Bruce joined the CS&L board.

At the end of the first quarter, CS&L also announced it had entered into a $3 million deal with its former parent to acquire 32 wireless towers owned by Windstream as well as operating rights for 49 wireless towers previously conveyed to the trust in its spin-off from the Little Rock telecom.

Once that deal is completed, wireless carriers now leasing access to these towers will become customers of CS&L, which will also receive rights to construct and operate wireless towers on nearly 1,000 properties currently leased exclusively to Windstream by CS&L.

Since spinning off CS&L nearly a year ago, Windstream’s debt-loaded shares have struggled to gain traction and the company’s market value has dropped well below $1 billion.

At the close of business Wednesday, Windstream stock closed up 4%, or 35 cents at $8.95, as more than 2.1 million shares traded hands on the Nasdaq stock exchange. The Little Rock telecom has seen some positive activity over the past month after touching a 52-week high of $9.31 per share on May 4.

CS&L shares also saw a small lift in Wednesday’s session on Nasdaq after Windstream sold off half of its stake in the trust. The Little Rock REIT closed up 22 cents at $26.34 on trading volume of nearly 620,000 shares.