Windstream Holdings Inc. on Monday (Feb. 18) put off its fourth-quarter and yearly earnings report scheduled for Thursday as the Little Rock-based Fortune 500 company evaluates its options following an adverse federal court ruling over the weekend that could push the rural broadband provider toward insolvency.
Late Friday evening, U.S. District Judge Jesse Furman for the Southern District of New York ruled Windstream violated bond agreements after splitting off the former Communications Sales & Leasing (CS&L) into the state’s first publicly-held real estate investment trust now known as Uniti Corp. nearly four years ago.
The decision arose from challenges by Aurelius Capital Management and U.S. Bank National Association that the spinoff was invalid under the terms of a debt exchange offer and consent solicitations in respect to senior notes issued by its Windstream Services LLC to its so-called “sale and lease back” deal to spinoff CS&L. The court in its ruling awarded Aurelius and the other winning parties a $310 million judgment.
In postponing its highly-anticipated year-end financial report, Windstream officials said the company is continuing to review all its options after it called the federal court ruling on Friday “disappointing and surprising.”
“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,” Windstream President and CEO Tony Thomas said in a Feb. 15 statement.
One of the company’s options could be filing a post-trial motion and appealing the multi-million dollar award, officials said. The Little Rock-based telecom said it now expects to release its fourth-quarter and full-year 2018 financial results no later than March 18, a month later than previously expected.
Closing out a potentially disappointing and unprofitable year in 2018, Wall Street had forecasted the Arkansas-based rural broadband provider to report a fourth quarter loss of $2.74 per share on declining revenue of $1.41 billion, according to Thomson Reuters.
A year ago, Windstream posted a fourth quarter net loss of $1.84 billion, or a loss of $10.26 per share, compared to a net loss of $87 million or a loss of 94-cents per share in 2016’s fourth quarter. However, those 2017 quarterly results included a $1.8 billion non-cash goodwill impairment charge related to the company’s local telephone service for residential, small businesses and wholesale consumers.
For the full-year, a consensus of telecom analysts expects the broadband operator to report a yearly loss of $6.99 per share on revenue of $5.73 billion. Windstream reported a net loss of $2.1 billion, or $12.52 per share, a year ago on revenue of $5.85 billion. That loss followed the 2017 acquisition of Atlanta-based Earthlink Holdings for $1.1 billion and a smaller all-cash deal for New York City cloud solutions firm Broadview Networks Holdings Inc. for $227 million.
Windstream’s operational woes mounted in 2018 after it first launched a debt exchange offer and consent solicitations on Oct. 18, 2017 in respect to senior notes issued by its operating subsidiary, Windstream Services LLC, related to the April 2015 creation of the nation’s first REIT solely focused on acquiring and leasing of telecom towers and distribution assets.
Windstream announced the debt swaps after U.S. Bank, prompted by an earlier claim in a Delaware Chancery Court in September 2017, filed a lawsuit a month later in the New York City-based federal court alleging that Windstream’s issuance of new senior notes would breach an agreement restricting the Little Rock telecom from incurring new debt.
In his 55-page ruling, U.S. District Judge Furman said the court’s task was “not to opine on the financial wisdom of (Windstream) Services’ decisions,” but to enforce the terms of the original debt agreement.
“Doing so here, the Court concludes that (Windstream) Services’ financial maneuvers — and many of its arguments here — are too cute by half,” the ruling stated. “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 influential New York court further stated that Aurelius was entitled to a $310.5 million judgment, plus interest from and after July 23, 2018. Aurelius has until Feb. 25 to confer with the other winning parties and draft a proposed judgment for the federal court’s approval.
While Windstream has postponed its conference call on Thursday morning with Wall Street analysts and investors, that has not stopped rampant hearsay that the federal court ruling could lead the Arkansas telecom into financial ruin. If Windstream is unable to pay off Aurelius and all of its other creditors and bondholders, the Arkansas rural broadband carrier would likely seek bankruptcy protection, analysts say.
Aurelius and its billionaire chairman Mark Brodsky have remained silent since Friday’s federal court ruling.
All financial markets were closed Monday due to the observance of Presidents Day, so Windstream and Uniti’s shares were spared the expected sell-off in the week opening session. At Friday’s closing, Windstream shares ended the week up 6.6%, or 21 cents at $3.37. However, in after-hours trading on the Nasdaq stock exchange late Friday evening the company’s shares had lost half of their value, falling a whopping 57% or $1.92 at a measly $1.45 per share.
Uniti’s shares were also caught in the after-hours downdraft after closing Friday up 51 cents at $19.98. After the closing bell, however, Uniti’s shares were off 30%, or $5.99 at $13.99 on the Nasdaq. Uniti, which gets nearly two-thirds of its revenue from Windstream’s lease-back agreement, also did not respond to request for comments for this story.