Windstream is moving to spin off a number of its copper and fiber assets into a publicly traded Real Estate Investment Trust (REIT), a move it says will enable it to lower debt by nearly $3.2 billion while accelerating its broadband and IP-based network transitions.
"The transaction will enable Windstream to accelerate broadband investments and transition to an IP-centric network faster, resulting in enhanced services for our customers and an improved competitive position," said Jeff Gardner, CEO of Windstream.
Under the terms of the deal, Windstream will spin out certain assets, including its fiber and copper networks and other real estate, as a REIT, which will lease use of the assets to Windstream through a long-term triple-net exclusive lease with an initial estimated rent payment of $650 million per year.
The two companies will work together in a triple-net exclusive lease where Windstream will rent facilities from the REIT.
However, Windstream will continue to operate and maintain the assets and deliver services to consumers and business, meaning that customers won't experience any change in their rates, scope or terms of service.
For consumer broadband customers, the service provider plans to expand the availability of its 10 Mbps service to more than 80 percent of its customers by 2018. In addition, it will double the availability of its 24 Mbps speed tier by 2018, expanding to more than 30 percent of its customers.
Gardner said that the deal will allow it to invest 13-15 percent of its revenue in terms of capex, "which will mean we can accelerate fiber deployment in our broadband markets and provide faster speeds for our consumer customers."
Existing and new business customers will also benefit from the emergence of new IP-based services.
"This transaction is going to allow us to transition faster to IP, which will make us a more competitive enterprise player," Gardner said. "We're having success in that mid-sized segment in between where the cable guys are entering the market and where the traditional players are focusing on global customers."
Following the creation of the REIT, the service provider will also have to continue to meet its existing state and federal regulations. Meanwhile, the REIT will focus on expanding and diversifying its assets and tenants through future acquisitions.
Heading up the REIT will be about 25 of Windstream's current employees, including Tony Thomas, Windstream's CFO, who will become CEO of the REIT. Francis X. "Skip" Frantz, a Windstream director, will serve as chairman of the REIT's board.
After meeting necessary state and federal regulatory approvals, Windstream anticipates that the spinoff would occur in the first quarter of 2015.
This is not the first time that Windstream has moved to realign its company structure.
Last August, it created a new holding company called Windstream Holdings, Inc., which became a new publicly traded parent company of Windstream Corp. and its various operating subsidiaries.
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