Windstream will walk away from its Chapter 11 bankruptcy for good following a decision from the Federal Communications Commission (FCC) to waive a rule that prohibits U.S. telecommunications carriers from having more than 25% ownership by foreign companies.
The FCC waiver is the final stamp of approval for Windstream’s plan of reorganization, for which the Bankruptcy Court gave the go ahead in June 2020. Windstream was forced to file for bankruptcy the year prior after losing a legal battle with New York hedge fund Aurelius Capital Management over whether the company had defaulted on bonds.
As part of restructuring, Windstream negotiated a proposal with hedge fund manager Elliott International and other investors to buy most of the company’s equity out of bankruptcy, while also removing a large chunk of its debt. In the end Windstream was able to shed more than $4 billion in debt and gain approximately $2 billion in hand to fuel new growth as a privately held company.
At the time the FCC granted a temporary waiver for its foreign ownership rules to enable Windstream’s “prompt emergence from bankruptcy,” but reserved the right to review and rule on the proposed foreign ownership interests following the company’s successful emergence from bankruptcy.
Under the proposal Windstream will have a total foreign equity interest of about 66.29%, according to the FCC’s order. U.S.-based Nexus Aggregator would have a 49.27% interest in the reorganized Windstream. But Elliott International, which is almost entirely owned by a Cayman Islands entity, is not U.S.-based and owns about 69.57% of Nexus.
With guidance from the National Telecommunications and Information Administration (NTIA), the FCC said that public interest “would not be served by prohibiting foreign ownership of Windstream, the controlling U.S. parent,” in excess of the usual benchmark of 25%.
Windstream’s petition also included proposed ownership by Pacific Investment Management Company (PIMCO), which ultimately is owned and controlled by Allianz SE, a corporation based in Germany.
Despite PIMCO only holding a minority interest, the management company’s involvement with Windstream was subject to review by the FCC because Allianz Global Investors (AGI), a subsidiary of Allianz, recently entered a $1 billion settlement with the Securities and Exchange Commission (SEC) establishing that AGI had committed securities fraud.
However, the FCC said based on an evaluation that AGI’s misconduct does “not disqualify PIMCO from holding an ownership interest in Windstream,” as AGI is not a part of PIMCO’s upstream ownership structure.
The FCC said approval of foreign ownership is contingent upon Windstream and its subsidiaries’ “affirmative duty to monitor their foreign equity and voting interests." The company in April filed a letter stating that it commits to monitor its ownership and file an annual certification that it is in compliance with the Commission’s foreign ownership rules.
A failure to comply with any of the FCC’s conditions could result in a reversal of the ruling, financial sanctions or other enforcement action by the Commission.