Windstream Holdings Inc. said Monday (Feb. 25) that it plans to enter Chapter 11 bankruptcy protection immediately as the Little Rock-based rural telecom provider deals with the fallout of an adverse federal court ruling on Feb. 15.
The Little Rock-based Fortune 500 telecom said in a statement that it and its subsidiaries have filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. They will use the court-supervised process to address debt maturities that have been accelerated as a result of the recent decision by Judge Jesse Furman in the Southern District of New York against subsidiary Windstream Services LLC, it said.
Chapter 11 bankruptcy allows a business to file a reorganization plan for its debt over a 120-day period.
“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,” said Tony Thomas, president and chief executive officer of Windstream.
“Taking this proactive step will ensure that Windstream has access to the capital and resources we need to continue building on Windstream’s strong operational momentum while we engage in constructive discussions with our creditors regarding the terms of a consensual plan of reorganization. We acted decisively to secure the long-term financial stability of Windstream, and we are confident that, upon completion of the reorganization process, we will be even better positioned to invest in our business, expand our speed and capabilities for our customers and compete for the long term.
Thomas continued: “I want to express my appreciation for the continued focus of the entire Windstream team as well as the loyalty and patience of our customers, vendors, channel partners and other stakeholders. With approval from the Court, we will continue paying our employees, maintaining our relationships with our vendors and business partners and serving our customers as usual. We remain committed to providing critical voice and data services and ensuring customers realize the maximum benefit in transitioning to next-generation technology solutions and premium broadband services.”
The publicly-traded telecom, which has nearly 1,500 employees in Arkansas and 13,000 nationwide, is seeking bankruptcy protection amid a lightning-fast collapse of investor and shareholder confidence in the company’s future over the past week.
On Monday, Windstream’s shares had declined to only 65 cents, a 52-week low, as news of the company’s pending bankruptcy filing filtered throughout Wall Street. Over the past 10 days, the Little Rock-based Fortune 500 telecom’s shares have lost nearly 80% of their market value after Windstream’s board of directors pushed out a public statement saying the company is mulling its options going forward.
Under NASDAQ rules, Windstream stock must remain at or above $1 for 30 days to stay listed on the exchange. Following the 2015 spinoffs of Little Rock-based REIT and a $1.1 billion acquisition of Atlanta-based Earthlink Holdings in 2017, Windstream now has outstanding debt of $5.81 billion on the books.
In conjunction with the Chapter 11 filing, Windstream said it has received a commitment from Citigroup Global Markets Inc. for $1 billion in debtor-in-possession (“DIP”) financing. Following approval by the court, this financing, combined with access to the cash generated by the company’s ongoing operations, will be available to meet Windstream’s operational needs and continue operating its business as usual.
The Arkansas publicly traded concern, which split off from the former Alltel Corp. in 2007, said it has filed a number of customary first day motions. These motions will allow the company to continue to operate in the normal course of business without interruption or disruption to its relationships with its customers, vendors, channel partners and employees, officials said. Company officials said they expect to receive federal court approval for these requests and intend to pay vendors in full for all goods received and services provided to Windstream after the filing date.
The bankruptcy caps a roiling week of speculation after a court ruling on Feb. 15 by U.S. District Judge Jesse Furman for the Southern District of New York that ruled Windstream violated bond agreements after splitting off the former Communications Sales & Leasing (CS&L) in April 2015.
Furman’s decisive ruling arose from challenges by Aurelius Capital Management and U.S. Bank National Association that the 2015 deal 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 finance the spinoff of a Little Rock-based REIT, CS&L, which is now known as Uniti Corp. The court further ruled that Aurelius was entitled to a $310.5 million judgment, plus interest from and after July 23, 2018.
Immediately, investors and financial analysts wondered if Windstream could cobble together the judgment, would appeal the ruling, or file for bankruptcy protection.
Windstream’s financial woes worsened on Friday (Feb. 22) after Moody’s Investors Service downgraded the corporate family rating (CFR) of Windstream Services to Caa3 from Caa1. The Wall Street credit rating service also downgraded the probability of default rating (PDR) to Caa3-PD from Caa1-PD, noting that both downgrades were prompted by the federal court ruling.
Read more on the last week of news from Windstream at this link.
Editor’s note: Talk Business & Politics’ Wes Brown and Roby Brock contributed to this report.