Windstream Holdings has filed for a voluntary Chapter 11 reorg in the wake of a court ruling earlier this month finding that the company defaulted on its debts in 2015.
Following the loss of a legal fight that awarded hedge fund Aurelius Capital Management a judgement of about $310 million plus interest of up to about $61,000 per day, Windstream announced Monday that it, along with its subsidiaries, filed for the reorg in the US Bankruptcy Court for the Southern District of New York.
Windstream said it has secured commitments of $1 billion in debtor-in-possession financing from Citigroup Global Markets to support business operations. The company also stressed it is committed to "operating its business as usual" during the process, including maintaining its relationships with vendors and other business partners, servicing customers and paying employees.
The provider plans to use the court-supervised process to address debt maturities that accelerated following the recent decision by Judge Jesse Furman in the Southern District of New York against Windstream Services LLC, which stemmed from an issue about whether the carrier's bond provisions allowed it to spin off that subsidiary into a real estate investment trust (REIT) called Unity Group back in 2015.
The plan centered on Windstream putting its physical network assets, including its fiber networks, into a REIT, with service providers using those assets as "tenants." Windstream viewed this as a way to reduce debt and accelerate the expansion of its broadband footprint, but Aurelius, a major holder of Windstream bonds, argued that Windstream's formation of the REIT violated the conditions of its bonds.
Windstream said it didn't turn to Chapter 11 due to "operational failures," and instead pinned the blame on the judge and Aurelius.
"Following a comprehensive review of our options, including an appeal, the Board of Directors and management team determined that filing for voluntary Chapter 11 protection is a necessary step to address the financial impact of Judge Furman’s decision and the impact it would have on consumers and businesses across the states in which we operate," Tony Thomas, Windstream's president and CEO, said in a statement. "Taking this proactive step will ensure that Windstream has access to the capital and resources we need to continue building on Windstream’s strong operational momentum while we engage in constructive discussions with our creditors regarding the terms of a consensual plan of reorganization."
He added that Windstream is confident it will come out of the reorg "even better positioned to invest in our business, expand our speed and capabilities for our customers and compete for the long term."
Windstream also "strongly disagrees with Judge Furman’s decision," Thomas added, arguing that Aurelius Capital Management, which launched the claims ruled on by the court, "engaged in predatory market manipulation to advance its own financial position through credit default swaps at the expense of many thousands of shareholders, lenders, employees, customers, vendors and business partners."
Per The Wall Street Journal, this recent wave of activity involving Windstream spotlights a "growing practice among hedge funds" to seek out instances when an otherwise operationally healthy company might have violated bond covenants.
"Aurelius for a long time has been taking on these litigation plays. That’s where they’re buying a specific bond because they believe the company has violated one of the terms on which the debt was issued," Lance Vitanza, a high-yield debt analyst at Cowen & Co., told the paper.
Windstream shares, which already got hit hard following the court ruling, were down 45.27%, to $0.46 each, in afternoon trading Monday. That compares to a 52-week high of $9.20.
- Windstream Files for Voluntary Chapter 11 Reorg
- Windstream Market Cap Plummets Following Court Ruling
- Windstream Woes: Hedge Fund Prevails in Bond Fight
- Judge Jesse Furman's ruling against Windstream (PDF)
- Windstream statement on court ruling in bondholder dispute.
— Jeff Baumgartner, Senior Editor, Light Reading