Secret talks between Windstream Holdings Inc. and its former real estate spin-off have broken down over a multi-million dollar landlord-tenant agreement that could threaten the solvency of both Little Rock concerns.
In a court filing Tuesday (Nov. 12) with the U.S. Bankruptcy Court for the Southern District of New York, Windstream said the court-ordered mediation between the Little Rock broadband operator, Uniti Corp., and an official committee of unsecured creditors that began in late July had hit a snag.
“The parties have not reached a resolution with respect to the issues and claims subject to the Mediation,” stated the 12-page federal bankruptcy court filing. “Therefore, the Mediation has been suspended indefinitely by the Mediator.”
In a statement referencing the company’s Chapter 11 reorganization process that began on Feb. 25, Windstream CEO and President Tony Thomas said the Little Rock rural broadband carrier would now look to the courts to resolve a long-standing dispute between the two Arkansas publicly traded concerns.
“We were unable to reach a satisfactory agreement with Uniti. Now we are fully focused on pursuing our litigation claims to conclusion,” said Thomas. “Windstream will continue to serve our customers throughout the restructuring process and strategically invest to expand rural broadband access through 5G fixed wireless technology and fiber deployment, while transitioning businesses to next-generation products and services.”
Windstream and Uniti first entered into mediation on July 31 on a master lease agreement after the latter filed voluntary petitions for reorganization in late February under federal Chapter 11 bankruptcy rules. 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. U.S. Bank and other unsecured creditors have also tried to change the terms of the lease agreement.
In the original court decision that pushed Windstream into bankruptcy, U.S. District Judge Jesse Furman’s ruling first arose from challenges by Aurelius Capital Management and U.S. Bank that the spinoff of Uniti in April 2015 was invalid under previous financial arrangements with Windstream.
Under the typical restructuring process in many corporate Chapter 11 proceedings, court-ordered mediation usually involves multiple rounds of behind-the-scenes negotiations between a debt issuer and its lenders. At the end of many failed talks, the bankrupt firm often releases “cleansing documents” that provide updated information on the company’s financial status, future outlook and growth expectations, and proposed refinancing or restructuring terms.
In today’s filing concerning the failed talks, Windstream’s proposed settlement terms show that the parties were far apart. Windstream’s offer included a cash consideration of $525 million and a stake in Uniti equal to 19.99% of the real estate trust’s current shares outstanding, among other considerations. The terms also included a substantial $1.75 billion upgrade through April 2030 by Uniti in its aging fiber network.
Uniti’s counterproposal offered a similar network upgrade as Windstream, but provided no equity stake to its former parent company more than four years after the Arkansas companies first split apart. Uniti’s proposed terms, however, included only a $100 million cash consideration that would also keep the current “rent escalator” payments by Windstream in place. Both proposed deals also included asset purchases and contract transfers that were beneficial to the future growth of both parties.
Wall Street analysts believe that Windstream’s future success is largely dependent on how it emerges from a Chapter 11 proceeding before the federal bankruptcy court in New York City later this year or early 2020. The Little Rock-based rural broadband operator has offered a possible view of its strategic path back to profitability following a recent auction where it snapped up several large swaths of highly prized, next-generation 5G spectrum.
On June 18, Windstream paid out $26.6 million for 24- and 28-gigahertz (GHz) blocks of spectrum in 14 states covering more than 5 million total households, including nearly 2 million locations where Windstream is the incumbent local exchange carrier. The spectrum and associated electronics and equipment will be wholly owned by Windstream, company officials said.
For its part, Uniti said last week that it is seeking to branch away from dependence on a multi-million dollar lease pact with Windstream after posting a third quarter loss of nearly $20 million. Like Windstream, Uniti sees its future in benefitting from 5G deployment by wireless giants like AT&T, Verizon, Sprint and T-Mobile.
“We continue to see favorable demand trends in all of our business units. Uniti Fiber recently signed a contract with a major wireless customer to deploy 800 combined macro backhaul and small cell sites across its Southeast fiber footprint, adding $500,000 of monthly recurring revenue once all sites are delivered over the next three years,” Uniti President and CEO Kenny Gunderman said last week. “This agreement demonstrates the continued need for wireless carriers to densify their networks as they move towards a broader rollout of 5G wireless services.”
Despite those assurances, Uniti’s shares touched a 52-week low in early trading today at $5.24 before rebounding around $6 in the frantic session on the Nasdaq stock exchange. By noon, nearly 5 million Uniti shares had traded hands, more than twice the daily volume for the Little Rock REIT.
Uniti officials did not immediately respond to a request for comment from Talk Business & Politics.