Windstream Holdings took the plunge into voluntary Chapter 11 bankruptcy on Monday after a legal setback earlier this month.
Windstream lost a legal battle with New York hedge fund Aurelius Capital Management over whether Windstream had defaulted on bonds by spinning off Uniti Group four years ago. Windstream filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York.
In the Southern District of New York, Judge Jesse Furman ruled that Windstream had to pay Aurelius about $310 million plus interest of roughly $61,000 per day. Windstream put its fiber and physical assets into a real estate investment trust (REIT), which it called Uniti Group, in 2015.
Windstream created the REIT as a means to reduce its debt while also expanding its broadband footprint. While Aurelius, which is a holder of Windstream bonds, didn't initially object to the formation of Unity, it did so in 2017. Aurelius sued Windstream and argued that it had stripped bondholders of assets that backed up their investments, according to an article by Bloomberg.
On Feb. 15, Judge Furman ruled in favor of Aurelius. Windstream placed its Chapter 11 filing squarely on the shoulders of Judge Furman and Aurelius.
“Windstream strongly disagrees with Judge Furman’s decision,” said Tony Thomas, president and chief executive officer of Windstream, in a prepared statement. “The company believes that Aurelius 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. Windstream stands by its decision to defend itself and try to block Aurelius’ tactics in court. The time is well-past for regulators to carefully examine the ramifications of an unregulated credit default swap marketplace."
It comes as no surprise that Aurelius said that Windstream's bankruptcy filing was its own fault. A statement emailed to Bloomberg included the following: “Windstream’s accusation of market manipulation is nonsense. Rather than whining about us and Judge Furman, Windstream’s management and board should engage in much-needed introspection. They alone caused the company to enter into a terrible sale-leaseback and prejudice its bondholders by breaking its promises to them.”
Windstream announced it has received a commitment from Citigroup Global Markets for $1 billion in debtor-in-possession financing. Windstream said that upon approval by the bankruptcy court, it would have enough cash on hand to meet its operational needs and "continue operating its business as usual."
“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," Thomas said. "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. We acted decisively to secure the long-term financial stability of Windstream, and we are confident that, upon completion of the reorganization process, we will be even better positioned to invest in our business, expand our speed and capabilities for our customers and compete for the long term."