Windstream and Uniti announce settlement and plan support agreement

By Caroline Salls

Pittsburgh, March 2 – Windstream Holdings, Inc. and Uniti Group Inc. announced Monday that mediation overseen by judge Shelley C. Chapman culminated in an agreement in principle to resolve claims and causes of action that have been or may be filed against Uniti by Windstream, including all litigation brought by Windstream and its creditors in the context of Windstream’s bankruptcy.

According to a news release, the settlement is also supported 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 noteholders, including affiliates of largest creditor Elliott Management Corp. and other members of an informal first-lien Windstream creditors group.

The settlement is subject to negotiation and execution of definitive documentation, regulatory approvals other, including approval by the U.S. Bankruptcy Court for the Southern District of New York and Uniti’s U.S. federal income tax compliance.

All litigation between Windstream and Uniti will be stayed while the parties negotiate and prepare the definitive documentation.

“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,” Uniti president and chief executive officer Kenny Gunderman said in the release.

“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.”

Windstream president and CEO Tony Thomas said in the release “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.”

Settlement terms

Under the settlement, Uniti will invest up to $1.75 billion in growth capital improvements, consisting of long-term fiber and related assets in certain Windstream ILEC and CLEC properties over the initial term of new leases.

On the first anniversary of the initial investment, the annual base rent payable by Windstream will increase by an amount equal to 8% of the 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 the deployment be engaged in jointly, with Uniti owning and operating any excess new strands deployed beyond Windstream’s forecast. In return, Uniti agreed to fund 50% of the total cost to deploy the CLEC fiber.

Windstream will transfer to Uniti dark fiber indefeasible rights of use (IRU) contracts that currently generate $21 million in annual EBITDA 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 IRUs being transferred.

Uniti will purchase for $40 million some Windstream-owned fiber assets, including fiber IRU contracts generating $8 million of annual EBITDA and 0.4 million fiber strand miles covering 4,100 route miles.

Windstream and Uniti agree to bifurcate their master lease into two structurally similar agreements to govern Windstream’s ILEC and CLEC facilities, respectively. Parties to the new leases include Windstream Holdings, Inc., Windstream Services, LLC and some of its subsidiaries and/or newly formed affiliated entities.

The initial total annual rent under the new leases will be equal to the annual rent under the master lease currently in effect. The new leases will be cross-guaranteed and cross-defaulted unless Windstream ceases to be the tenant under one of the new leases.

The new leases require Windstream to comply with covenants, any default under which will relieve Uniti of its obligations to fund growth capital improvements, and permit Uniti to transfer its rights and obligations and otherwise monetize the new leases so long as it does not transfer interests to a Windstream competitor.

Total consideration to Windstream from Uniti, exclusive of the $40 million purchase price, will consist of $400 million in consideration paid in quarterly cash installments over five years, at an annual interest rate of 9%, which may be fully paid after one year, resulting in total payments ranging from $432 million to $490 million; and $244.5 million of proceeds from, and conditioned upon, the sale of Uniti’s stock to creditors of Windstream.

Uniti will sell to first-lien creditors of Windstream 38,633,470 shares of Uniti common stock at a price of $6.33 per share.

Some recipients of the settlement common stock will be subject to a one-year lock up, and all recipients will be subject to a customary standstill agreement.

Plan support deal

According to an 8-K filed with the Securities and Exchange Commission, in connection Uniti, Windstream and some of Windstream’s creditors entered into a plan of reorganization support agreement.

The support agreement requires Windstream to file a motion for approval of the settlement by March 12 and obtain court approval of the settlement by April 6. It also requires Windstream to appeal any bankruptcy court order denying approval of the settlement or any order overturning an order approving the settlement on appeal, and the issuance by a regulatory authority of an order enjoining completion of the settlement.

The plan support parties expect the plan to take effect and for Windstream to emerge from bankruptcy by Aug. 29.

Windstream said in a separate news release that it will file its plan of reorganization with its proposed new capital structure as soon as possible, with a target of filing the plan by the end of March.

Windstream is a Little Rock, Ark., telecommunications provider. The company filed bankruptcy on Feb. 25, 2019 under Chapter 11 case number 19-22312.

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