Windstream Market Cap Plummets Following Court Ruling

Shares of telecom carrier Windstream fell $2.06 (-61.13%) to $1.31 as investors ran away from the company following a federal judge's decision in favor of its bondholders.

The hedge fund Aurelius Capital Management, a major holder of Windstream bonds, said that Windstream violated the condition of its bonds when, in 2015, it spun off its Windstream Services subsidiary into a real estate investment trust (REIT) called Uniti Group.

Windstream's market capitalization was $144.7 million as of the afternoon of Friday, February 15, and had fallen to $56.3 million by the close of business on Tuesday, February 19.

The hedge fund really rubbed it in when it issued a response to Windstream management on Tuesday.

"According to its statement last Friday, Windstream now intends to appeal," the bondholder wrote. "This is welcome news for our fund, as it will require Windstream to post a surety bond exceeding $300 million. That surety bond will pay in full the notes our fund owns when Windstream loses the appeal. We are happy to take the surety company's credit over Windstream's."

Then the hedge fund flipped off the other Windstream debt holders. "To noteholders who chose to play the company's game even after it had broken its promise, we wish you luck with your exchange notes," the company said in its statement. "Between their dubious status and their OID [original issue discount] risk in bankruptcy, we suspect you will need it."

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Phil Harvey, US Bureau Chief, Light Reading

Phil Harvey 2/20/2019 | 10:23:40 AM
Re: WOW! Also, it should be noted that The Jiggling Bonds would be a great name for a rock band.
brooks7 2/19/2019 | 8:52:31 PM

So, I read through (admittedly I skimmed parts) the ruling.

Whoever was advising Windstream was completely asleep at the wheel.


For those TL:DR folks, a summary.  The REIT formation has been found in breach of a clause that prevents Sale-Leaseback arrangements.  On top of that, Windstream tried some jiggling of the bonds here to try to get out of it.  That has been found to violate yet another convenant.

I agree with your earlier note....this looks REALLY definitive.   Windstream's best argument that I saw was that the word LEASE was not defined and yet the entire point of the LEASE was to transfer the assets and LEASE them back.  When that is you BEST argument, well good luck.


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