Windstream Holdings and its former subsidiary Uniti Corp. have reached a settlement that could allow Windstream to exit bankruptcy. The two sides have been tangled in mediation and a legal quagmire as the Little Rock-based telecom and broadband provider has navigated a year-long debt reorganization process.
Windstream initially filed for Chapter 11 bankruptcy a year ago after a legal ruling in New York determined that it had violated bond agreements after splitting off the former Communications Sales & Leasing (CS&L) in April 2015. CS&L was the previous name of Little Rock-based Uniti, a real estate investment trust that was spun out of Windstream and manages its fiber optic network.
Uniti, which counts Windstream as its largest customer, had been in mediation with Windstream, but talks fell apart in November 2019. A trial was expected to begin next week.
Under the announcement made Monday (March 2), the two companies outlined several conditions to resolve their impasse.
- Uniti agreed to invest up to $1.75 billion in growth capital improvements, consisting of long-term fiber and related assets in certain Windstream properties over the initial term of new leases;
- On the first anniversary of the initial investment for growth capital improvements, the annual base rent payable by Windstream will increase by an amount equal to 8.0% of such new investment, subject to a 0.5% annual escalator;
- For growth capital improvements that include fiber deployments in CLEC territories, Uniti will have the option to require that such deployment be engaged in jointly, with Uniti owning and operating any excess new strands deployed beyond Windstream’s forecast. In return, Uniti agrees to fund 50% of the total cost to deploy the CLEC fiber.
- Windstream will transfer to Uniti certain dark fiber rights of use, that currently generate approximately $21 million annually, and relinquish its rights to use 1.8 million fiber strand miles currently leased by Windstream that are either unutilized or utilized for the dark fiber being transferred;
- Uniti will purchase for $40 million certain Windstream-owned fiber assets, including certain fiber contracts generating $8 million of fiber strand miles covering 4,100 route miles;
- Windstream and Uniti agreed to bifurcate their master lease into two structurally similar agreements with new terms for leases of certain properties; and
- The two companies have agreed to mutual releases with respect to any and all liability related to any claims and causes of action between them, including those relating to the Chapter 11 proceedings and the master lease.
All told, Uniti will pay $400 million to Windstream on a quarterly basis over a five-year period at an annual interest rate of 9%, although that amount could be reduced if proceeds from the sale of Uniti stock to certain Windstream creditors is approved. Uniti will also sell to certain first lien creditors of Windstream 38.6 million shares of Uniti common stock at a price of $6.33 per share.
Windstream and Uniti announced that the settlement has been agreed to by lenders that own more than 72% of Windstream’s outstanding first lien debt and more than one-third each of its second lien creditors and unsecured note holders.
Both company leaders issued statements in a press release announcing the settlement.
“Our agreement with Uniti will provide substantial fiber-based network investments for Windstream to significantly expand 1 Gigabit internet service for consumers, positioning the company for sustainable growth and margin expansion upon emergence from restructuring. Our goal remains to emerge from restructuring as soon as possible under the best possible terms for Windstream and all our stakeholders,” said Tony Thomas, President and CEO of Windstream.
“We are pleased to have achieved a mutually beneficial outcome for both Uniti and Windstream, which has been our stated goal from the beginning. This agreement has substantial strategic value for Uniti as it immediately allows the company to expand its national fiber footprint with approximately 450,000 new fiber strand miles and 1.8 million of existing fiber strand miles that are able to be leased by Uniti to a third party,” said Kenny Gunderman, President and Chief Executive Officer of Uniti.
“The agreement also provides further expansion in the coming years for additional fiber deployment with our commitment to invest up to $1.75 billion of capital in Uniti-owned, Windstream-leased assets. Approximately 90% of our committed capital as part of the settlement agreement will be used to acquire or build new REIT eligible fiber assets with attractive yields. We look forward to a strong working relationship with Windstream as we focus on enhancing Windstream’s competitive position and the network Windstream leases from Uniti,” Gunderman added.
Windstream once employed nearly 1,500 in Arkansas and 13,000 nationwide.
Uniti shares (NASDAQ: UNIT) traded higher on Monday, closing at $9.89. Windstream, which delisted from , now trades OTC (over the counter). Its shares closed at 8.5 cents per share on Monday.