Windstream Holdings targets late August for end of Chapter 11 bankruptcy

If all goes according to plan, Windstream Holdings will emerge from Chapter 11 bankruptcy in August, according to Tony Thomas, president and chief executive officer of Windstream. During Windstream's pre-recorded first quarter earnings call on Monday, Thomas said Windstream hoped to exit Chapter 11 bankruptcy in late August subject to regulatory approvals.

Windstream's plan for ditching Chapter 11 received a boost on Friday when Judge Robert Drain, of the U.S. Bankruptcy Court for the Southern District of New York, approved Windstream's settlement agreement with Uniti Group that was first announced in early March. Along with announcing it had reached an agreement with Uniti, Windstream announced at the same time it had negotiated a proposal with hedge-fund manager Elliott Management Corp. and other investors to buy most of Windstream's equity out of bankruptcy while also removing a large chunk of its debt.

RELATED: Windstream reaches agreements with creditors and Uniti Group

The next hurdle for Windstream Holdings is a confirmation hearing and confirmation order on June 15. If that goes well, Windstream can proceed with its plan to end its Chapter 11 bankruptcy in late August.

Windstream's path to a post-Chapter 11 world has been long, and at times, somewhat acrimonious  as it negotiated with Uniti Group. Prior to their March agreement, Windstream and Uniti would have squared off in court to settle their differences.

In February of 2019, 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.

RELATED: Windstream creditors look to halt Uniti lease payments

After last year's ruling, Windstream filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York that same month. Windstream was paying $54 million per month to Uniti for access to Uniti's network assets.

The master lease with Uniti was set to expire in 2030, and had an annual rent of approximately $659 million. Windstream filed a complaint against Uniti on July 25 that sought to re-characterize its relationship with Uniti from a lease to a financing arrangement.

Prior to the March agreements, Windstream was saddled with between $5.6 billion and $5.8 billion of debt, which Windstream ireduced by more than $4 billion.

Among the settlement terms in March, Uniti agreed to invest up to $1.75 billion in growth capital improvements, including "long-term fiber" and related assets in certain Windstream CLEC and ILEC properties over the initial term of the new leases. Thomas said on the earnings call that Windstream would use some of that investment to deliver 1 Gig Internet speed to approximately half of its Kinetic broadband footprint that serves consumers and small businesses.

Uniti will also pay Windstream approximately $490 million and buy certain unused and underutilized dark fiber assets from Windstream for an additional $285 million

On the other side of the settlement coin, Windstream will transfer certain dark fiber indefeasible rights of use (IRU) rights of contract, which currently generate approximately $21 million in annual EBITDA, and 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. 

"We look forward to emerging from bankruptcy later this summer, with greatly improved financial flexibility with over $4 billion in reduced debt compared to our current debt levels, as well as the economic benefits of our new agreement with Uniti," said Windstream CFO Bob Gunderman, on the earnings call.

COVID-19's impact

Thomas said that all but 7% of the company's employees were now working from home due to the impact of COVID-19. In the first quarter, Windstream started a "home-garaging" program that allows its call center employees and field technicians to limit face-to-face interactions with customers by working from home.

It also provided field technicians with personal protective equipment (PPE.) Similar to Charter Communications, Thomas said Windstream temporarily increased compensation levels for its field techs. A spokesman for Windstream said the company hasn't disclosed the amount of the pay increases for its field techs, or how long the increases would last.

"Given the increased demand for residential broadband connections, our field technicians are front and center and our ability to provide new services and repairs to existing services," Thomas said. "Their safety and our customer safety are paramount during this pandemic.

"I also want to recognize our procurement team for effectively managing our various supply chains across the company during this global crisis, our team managed to definitely avoid any significant supply chain issues through constant communication with our vendors and suppliers work closely effectively managing our existing inventory."

Similar to other U.S. service providers, Windstream has seen a 30% spike in Kinetic data traffic compared to pre-COVID-19 levels. With settlement in place policies starting to abate in some areas of the U.S., Thomas said it was hard to predict network traffic going forward because it remains to be seen how many work-from-home employees return to their office spaces.

"Our network is well equipped to handle the expected incremental passing, given our past modernization efforts that migrated Windstream to scalable robust IP Ethernet services," Thomas said.

Windstream's Q1 numbers

Windstream added a record number of 18,000 new Kinetic broadband subscribers in the first quarter with 9,900 signing up in March alone. As Windstream invests in more fiber, Thomas said there's a lot of headroom for Windstream to increase its broadband speeds and customer subscribers for tiers over 25 Mbps and 1-Gig.

Kinetic service revenues were $505 million compared to $514 million in the same period a year ago, and segment contribution margin was $302 million compared to $309 million year-over-year

Windstream Enterprises' revenues grew 28% year over. Windstream once again claimed to be the largest SD-WAN service provider in the U.S. with 3,200 customers and more than 29,000 SD-WAN endpoints under contract.

Enterprise service revenues were $590 million compared to $696 million in the same period a year ago, and segment contribution margin was $113 million compared to $133 million year-over-year.  Wholesale service revenues were $85 million compared to $93 million in the same period a year ago.

Adjusted total revenues and sales were $1.20 billion compared to $1.32 billion in the same period a year ago. Adjusted total service revenues were $1.18 billion compared to $1.30 billion year-over-year.

Adjusted capital expenditures were $232 million compared to $193 million in the same period a year ago. The company’s available liquidity as of March 31 was $555 million.