Shareholders of Windstream Holdings Inc. and closely-tied Uniti Corp. fled both companies’ stocks in Tuesday’s trading session after a Wall Street hedge fund mocked the Little Rock telecom’s response to an adverse federal court ruling over the weekend related to the 2015 spinoff of its fiber backbone assets.
At Tuesday’s (Feb. 19) closing bell, Windstream shares had lost nearly two-thirds of their value as the company’s stock collapsed by a whopping 61%, or $2.06, at only $1.31 on the NASDAQ stock exchange. Uniti, the publicly held real estate investment trust (REIT) that split off from Windstream nearly four years ago, plunged by 37.4%, a decline of $7.47 at $12.51.
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 an unusual turn Tuesday, Aurelius issued a terse news release that ridiculed the company’s confidence prior to the federal court ruling. In one highlighted statement by Aurelius from Sept. 14, 2018, Windstream CEO Tony Thomas confidently stated: “There’s no uncertainty here in my mind in terms of the outcome. … Obviously, we are going to win,” said Thomas, adding two months later, “As I have shared my view many times previously and will share here once again, the only uncertainty regarding this proceeding is when the decision will be issued.”
In a statement that was strategically released during midday NASDAQ trading, Aurelius officials said the Wall Street firm was gratified by the Manhattan federal court’s decision that Windstream’s senior 6-3/8% notes due 2023 should not have been accelerated because the Arkansas broadband carrier violated an agreement for certain bonds.
“Windstream’s professed ‘surprise’ at Judge Furman’s well-reasoned decision, issued after a multi-day trial and several volumes of exhibits and briefing, has only the modest virtue of consistency to commend it,” Aurelius said in a one-page statement.
“We take no pleasure in Windstream’s resulting financial predicament. Windstream could easily have averted it – first by not playing fast and loose with its noteholders in 2015, hoping nobody would hold the company to account, and second by settling,” said the Aurelius statement. “Instead, Windstream wasted an exorbitant amount – more than would have been needed to settle with us at the time – on an ineffective exchange offer and then on litigation.”
Aurelius also said Windstream’s management and board of directors “chose to bet the company.”
“The company lost,” said the New York hedge fund headed by Mark Brodsky, a former bankruptcy attorney.
Aurelius also said it welcomed the possibility Windstream would appeal the $310 million court judgment, which the company cited over the weekend as one of its options following the 55-page court ruling.
“This is welcome news for our fund, as it will require Windstream to post a surety bond exceeding $300 million. That surety bond will pay in full the notes our fund owns when Windstream loses the appeal. We are happy to take the surety company’s credit over Windstream’s,” said Aurelius.
The Wall Street hedge funded ended its broadside also deriding Windstream noteholders. “To (those) who chose to play the company’s game even after it had broken its promise, we wish you luck with your exchange notes. Between their dubious status and their OID (original issue discount) risk in bankruptcy, we suspect you will need it.” To view Aurelius’ full statement, click here.
By end of the trading day, Windstream and Uniti were by far the biggest decliners on the tech-focused NASDAQ as both Arkansas-based companies saw more activity together than the next 20 concerns combined. More than 48.6 million shares of Uniti traded hands in the week-opening session, 28 times the Little Rock-based REIT’s normal volume.
Windstream’s depressed stock had total volume of nearly 16.8 million shares, 20 times the normal trading activity. The Little Rock telecom did not respond to Aurelius’ statement, but on Monday postponed its fourth-quarter and yearly earnings report due to the federal court ruling.
Exactly a year ago, after undergoing a workforce reduction that cut more than 50 jobs locally, Windstream said it had about 1,275 employees in Arkansas and about 13,000 nationwide. The Little Rock-based Fortune 500 broadband provider offers an array of Internet-linked services in mostly rural areas across 18 states on its 150,000-mile broadband network.
UNITI: FOCUSED ON ‘WORKING THROUGH CHALLENGES’
Uniti also issued a statement reminding shareholders that Arkansas’ first publicly-held REIT is not a party to litigation involving Windstream. The Little Rock REIT, which owns more than 850 wireless towers and about 5.4 million miles of fiber real estate across the U.S., is still on schedule to report its fourth quarter and year-end earnings on Feb. 28.
“It is our understanding that Windstream intends to take action and pursue all available options. The validity of our master lease agreement with Windstream was not impacted by the ruling, and access to our network remains critical to Windstream’s operations and its ability to serve its customers,” said Uniti President and CEO Kenny Gunderman. “We are focused on working through the challenges related to the court ruling and continue to be committed to serving the interest of our stockholders, our customers, and our other partners.”
Still, Uniti’s shares are closely tied to Windstream because the Little Rock telecom is the company’s largest customer and is obligated for more than 60% of its trust’s revenues due to a lease-back agreement with its former parent.