LITTLE ROCK, Ark. – Uniti Group and its subsidiaries and Windstream Holdings, Inc. and its subsidiaries (collectively, "Windstream") jointly announced today that the mediation overseen by the Honorable Shelley C. Chapman has culminated in an agreement in principle (the "Settlement") to resolve any and all claims and causes of action that have been or may be asserted against Uniti by Windstream, including all litigation brought by Windstream and certain of its creditors in the context of Windstream's bankruptcy.
The Settlement is additionally 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 note holders, including affiliates of Elliott Management Corporation, Windstream's largest creditor, and other members of the ad hoc first lien Windstream creditors group. The Settlement is subject to negotiation and execution of definitive documentation and certain regulatory approvals and conditions precedent, including bankruptcy court approval 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 implementing the Settlement.
SUMMARY OF SETTLEMENT TERMS
A summary of the settlement terms are as follows:
- Uniti agrees to 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 (the "Growth Capital Improvements"), over the initial term of the New Leases (as defined below).
- 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 indefeasible rights of use ("IRU") contracts (that currently generate approximately $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, certain Windstream-owned fiber assets, including certain 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 the Master Lease into two structurally similar agreements to govern Windstream's ILEC and CLEC facilities, respectively (collectively, the "New Leases"). Parties to the New Leases include Windstream Holdings, Inc., Windstream Services, LLC, and certain of its subsidiaries, and/or newly formed affiliated entities.
- The initial aggregate 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 will require that Windstream comply with certain 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.
- Pursuant to the Settlement, Uniti and Windstream agree 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.
- Total consideration from Uniti to Windstream (exclusive of the $40 million referred to above) to consist of: $400 million in consideration paid in quarterly cash installments over five years, at an annual interest rate of 9%, which amount may be fully paid after one year, resulting in total payments ranging from $432 - $490 million; $244.5 million of proceeds from, and conditioned upon, the sale of Uniti's stock to certain creditors of Windstream as described below.
- Uniti will sell to certain first lien creditors of Windstream 38,633,470 shares of Uniti common stock, par value $0.0001 per share (the "Settlement Common Stock"), at a price of $6.33 per share, which represents the closing price of Uniti's shares on the date when an agreement in principle on the basic outlines of the settlement was first reached, with all proceeds from such sale provided to Windstream as described in the preceding paragraph. The issuance and sale of the Settlement Common Stock will be made in reliance upon the exemption from registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Certain 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. No recipient will receive any governance rights in connection with the issuance.