Little Rock-based Uniti Group Inc., the former spinoff of Windstream Holdings Inc., has filed a motion in federal bankruptcy court in New York seeking to halt appointment of a mediator to oversee negotiations of a multimillion-dollar master lease agreement between Arkansas’ two publicly traded telecoms.
In a statement issued after the close of market Tuesday (July 22), Uniti said it filed its 40-page objection on July 19 in U.S. Bankruptcy Court of the Southern District of New York against Windstream bankruptcy trustees and other parties concerning negotiations over a master lease agreement set to expire in 2030. A month ago, Talk Business & Politics reported that Windstream and Uniti had entered lease renegotiations.
“Uniti is encouraged by the continued efforts to reach a mutually beneficial outcome between Windstream and Uniti. We remain focused on serving the interests of our stakeholders first, while also remaining hopeful that Windstream will emerge with an improved business,” said Kenny Gunderman, president and CEO of the nation’s real estate investment trust in the telecom sector.
Uniti and Windstream entered into negotiations earlier this summer on the master lease agreement after the latter filed voluntary petitions for reorganization on Feb. 25 under Chapter 11 of the U.S. Bankruptcy Code in the influential bankruptcy court on Wall Street. That followed an adverse court ruling on Feb. 15 by U.S. District Judge Jesse Furman for the Southern District of New York that Windstream violated bond agreements after splitting off Uniti in April 2015.
Windstream, which was granted a six-month extension by U.S. District Bankruptcy Court Robert Judge on June 17 to file its reorganization plan by the end of the year, but can’t move forward without resolving the master lease agreement set to expire in 2030. The deadline to accept or reject the real estate leases has been moved to Sept. 23, court filings show.
The controversial lease agreement provides for annual rent of $659 million to Uniti paid in equal monthly installments in advance, with an annual base rent escalator of 0.5%, according to securities filings. Federal bankruptcy law requires that Windstream continue to make regular rent payments to Uniti during its bankruptcy in order to maintain access to the broadband operator’s network. Windstream has continued to make the required timely rent payments, said Uniti officials.
Uniti, with 500 wireless towers and nearly 5.6 million miles of fiber network and other telecom real estate assets across the U.S., said it has pushed Windstream to engage in negotiations from the outset of the case, and has proposed multiple deals that would create value and creditor recoveries for the former Alltel landline subsidiary.
Uniti said it filed its objection last week in federal bankruptcy court in response to a motion filed by indentured trustees for certain unsecured notes issued by certain of Windstream Holdings’ subsidiaries. Uniti’s objection also responded to various similar claims and allegations raised in the motion filed by Windstream’s unsecured creditors committee (UCC).
In the original court decision that pushed Windstream into bankruptcy, Judge Furman’s ruling first arose from challenges by Aurelius Capital Management and U.S. Bank that the spinoff of the Uniti was invalid under previous financial arrangements with Windstream. The court ruled that Aurelius was entitled to a $310.5 million judgment, plus interest from and after July 23, 2018.
Uniti said it believes pleadings by bankruptcy trustees and the U.S. Bank-led group contain factual and legal flaws and inconsistencies.
“Under appropriate legal tests, Uniti is confident the master lease is a “true lease,” and every serious analysis of it ever performed by specialists has reached that conclusion,” the company said. “Uniti is confident that a careful examination of the evidence (including many of the very documents cited by UMB, U.S. Bank, and the UCC) will confirm that the master lease is a true lease, as it was asserted to be by Windstream and its advisors when it was executed.”
Windstream is Uniti’s largest customer and is obligated for more than 60% of the company’s revenues due to a landlord-tenant, lease-back agreement going back nearly four years. However, Windstream has already made it known that it hopes to change the terms of the lease agreement with its’ former subsidiary.
Uniti also says the banks and other creditors lack standing to challenge the master lease agreement with Windstream.
“With only four weeks’ notice, no testing of evidence, no documentary discovery or witness testimony, and no other procedural safeguards of any kind, the Movants ask the Court to rewrite the terms of a multi-billion dollar lease and to take away from Uniti and give to (Windstream) and its subsidiaries (who are not even party to the Master Lease) billions of dollars of property,” Uniti states in the bankruptcy court filing. “That is not how any meaningful litigation is done in bankruptcy, let alone a proceeding of the magnitude of an attack on the true character of the Master Lease.”