Mediation talks between Windstream Holdings and spinoff Uniti Group came to a close on Tuesday as both parties were too far apart on negotiations that are key to their respective futures.
“We were unable to reach a satisfactory agreement with Uniti," Windstream CEO Tony Thomas said in a statement to FierceTelecom. "Now we are fully focused on pursuing our litigation claims to conclusion. Windstream will continue to serve our customers throughout the restructuring process and strategically invest to expand rural broadband access through 5G fixed wireless technology and fiber deployment, while transitioning businesses to next-generation products and services.”
Uniti didn't respond when asked for a comment on Tuesday's court filing.
In a Tuesday court filing with the U.S. Bankruptcy Court for the Southern District of New York, Windstream said the court-ordered meditation between the two companies and an official committee of unsecure creditors had reached an impasse. Now that mediation has failed, Windstream and Uniti will take their differences to the same court in early March.
In February, Windstream lost a legal battle with New York hedge fund Aurelius Capital Management over whether Windstream had defaulted on bonds by spinning off the Uniti Group four years ago. As part of that spinoff, Windstream transferred copper-based network assets to Uniti, which Windstream leased back from Uniti to serve its 1.4 million residential and business customers across its 18-state footprint.
After the February ruling, Windstream filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York the same month.
Windstream is paying $54 million per month to Uniti for access to Uniti's network assets. The master lease with Uniti is set to expire in 2030 and has an annual rent of $659 million.
RELATED: Windstream creditors look to halt Uniti lease payments
Also complicating matters, UMB Bank and U.S. Bank made a motion in July that Windstream stop making payments to Uniti. The banks contended that the payments are not lease arrangements, but rather a financing agreement, the latter of which would be barred under bankruptcy proceedings. The banks said Windstream shouldn't be making rent payments to Uniti while it's under Chapter 11 protection, but should instead keep that cash on hand to pay its creditors.
Resolving the lease is key to Windstream's restructuring efforts while an outright rejection of the lease by Windstream would cast doubt on Uniti's solvency, according to a previous statement by Uniti CEO Kenny Gunderman.
Currently, Windstream accounts for 65% of Uniti's revenue and 85% of its EBITDA as of the recent third quarter, according to a Wells Fargo Securities note.
"Until this matter is solved in a more formal (legal) way, we believe this will continue to be a large overhand to the Uniti story," Wells Fargo Securities' analysts wrote.
Tuesday's court filing showed that Windstream and Uniti were far apart in their mediation talks. Windstream proposed a cash consideration of $525 million and stake in Uniti up to 20% of Uniti's current outstanding shares, among other considerations.
For its part, Uniti proposed $100 million in cash considerations and keeping the current "rent escalator" payments in place. Windstream outlined both sides' proposals in a "cleansing materials" document released on Tuesday.
RELATED: As it marches through Chapter 11, Windstream Holdings sees its revenues slide in 3Q
Last week, Windstream reported that its adjusted total revenue and sales were $1.27 billion in the third quarter, which was down from $1.38 billion in the same quarter a year ago.
In its third quarter, Uniti reported a loss of $19.8 million, or 10 cents per share, down from net income of $2.1 million, or 1 cent per share, in the same quarter a year ago.