Windstream’s 3Q losses deepen to $102 million, announces plans to dismiss hedge fund lawsuit

Windstream Holdings’ third quarter losses deepened as the company incurred millions in hurricane-related expenses across its Gulf Coast operations and closed on its recent acquisition of upstate New York cloud solutions operator Broadview Networks in late July, the Little Rock telecom announced before Thursday’s (Nov. 9) opening bell.

Windstream’s disappointing third quarter financial results and operations were largely overshadowed with a lawsuit by New York City-based hedge fund Aurelius Capital Management, which CEO Tony Thomas immediately addressed in a conference call with Wall Street analysts as market trading began on Thursday.

“As I am sure most of you are aware, in late September we were engaged by a hedge fund that recently acquired a position in our (company) for the sole purpose of declaring a default related to the Uniti spinoff transaction that occurred over 2-1/2 years ago,” Thomas said.

Thomas said earlier this week Windstream had successfully completed a tranche of debt swap offerings and consent solicitations first announced on Oct. 18, including an offer for 6 3/8% senior notes due 2023 that Aurelius sought to halt through a lawsuit filed by the bond trustee in U.S. District Court in New York.

“We have successfully obtained consent for our 6 3/8% senior notes due 2023, which we believe resolve our allegations of default …,” Thomas said, adding that the company will file a motion in U.S. District Court for the Southern District of New York to dismiss the claims by the hedge fund.

Late Tuesday evening, U.S. Judge Jesse Furman for U.S. District Court for the Southern District of New York ordered Windstream to file a motion to dismiss Aurelius’s lawsuit “on mootness grounds” by Nov. 21. In a Nov. 1 letter to bondholders, Aurelius urges the trustee, US Bank, not to authenticate new senior notes 6-3/8% notes due 2023 because Windstream’s 2015 spinoff of Uniti violated an agreement for certain bonds.

Thomas refused to discuss other details of the Aurelius situation because of possible pending litigation, but did say Windstream’s recent debt offerings improved the company’s liquidity and cash positions. Still, for the period ended Sept. 30, Windstream reported a net loss of $102 million, or a loss of 55 cents per share, compared to a net loss of $66 million, or a loss of 72 cents per share, a year ago.

Wall Street analysts expected the broadband provider to report a third quarter loss of 41 cents per share on revenue of $1.51 billion, according to Thomson Reuters. In Thursday’s early session, Windstream’s shares (NASDAQ: WIN) were off six cents, or 3.1% at $1.86 per share.

Windstream closed its acquisition of Rye Brook, N.Y.-based cloud solutions operator Broadview Networks Holdings Inc. on July 28, in an all-cash deal worth $227.5 million. Broadview Networks is the provider of cloud-based solutions to small and medium-sized businesses under the “OfficeSuite” brand. Windstream first announced in April its plans to acquire the East Coast telecom, which company officials have said will emerge as important solution for Windstream customers that are increasingly dependent on the cloud and looking to digitally transform onsite.

Since the acquisition, Windstream has adopted a new business unit structure, combining its operations into two business units, Cloud & Connectivity and Consumer & SMB. The company is also consolidating the legacy enterprise, CLEC C/SMB and Wholesale businesses into the Cloud & Connectivity unit.

“Our overall strategy continues to deliver solid results,” Thomas said. “We continue to see growing demand for our SD-WAN service, which represented 19 percent of total enterprise sales in the quarter. Strategic enterprise sales, which include SD-WAN, Unified Communications as a Service and on-net sales, accounted for 36 percent of total enterprise sales in the quarter. We also continue to deliver faster broadband speeds to more consumers and small businesses, which led to improved broadband subscriber trends sequentially.”

Windstream reported total revenues and sales of $1.5 billion and total service revenues were $1.47 billion in the third quarter, an increase of 11% and 12%, respectively, year-over-year. Operating income was down 66.7% to $43 million compared to $129 million in the same period a year ago.

Windstream said during the quarter it had $3 million in expenses related to property damage and restoration of communications services because of Hurricanes Harvey and Irma.

Over past 52 weeks, Windstream shares have traded in the range of $1.73 per share on the low end and $8.35 a share as a yearly high.