Uniti and Windstream have reached an agreement in principle that would settle litigation between the two companies related to Windstream’s spinoff of certain network assets to Uniti and Windstream’s bankruptcy filing. The settlement is subject to negotiation and certain regulatory approvals, including bankruptcy court approval, the companies said.
They added that nearly three quarters (72%) of Windstream’s outstanding debtholders and more than one third each of its second lien creditors and unsecured noteholders support the agreement.
Fiber plans are front and center in the proposed settlement and according to Windstream CEO Tony Thomas, “will provide substantial fiber-based network investments for Windstream to significantly expand 1 gigabit internet service for consumers, positioning the company for sustainable growth and margin expansion upon restructuring.”
Thanks, in large part, to the Uniti agreement, Windstream also today said it has entered into a plan support agreement (PSA) with its first lien creditors regarding the main terms of a comprehensive financial restructuring. Windstream said it plans to file a Chapter 11 plan of reorganization for court approval “as soon as possible with a target of by the end of March.”
Uniti, originally known as Communications Sales & Leasing, is the real estate investment trust (REIT) that was spun out of Windstream several years ago, along with a large percentage of Windstream’s copper and fiber network assets, which Uniti has been leasing back to Windstream. Certain aspects of that spinoff caused Windstream to be liable for hundreds of millions of dollars, with an unfavorable court decision last year triggering Windstream to file for bankruptcy.
Uniti’s fate is closely intertwined with that of Windstream, as Windstream’s lease payment represents the majority of Uniti’s revenues.
Proposed Uniti Windstream Settlement
As part of the proposed Uniti Windstream settlement, Uniti agrees to sell 38.6 million shares of Uniti common stock for $6.33 per share to certain first lien Windstream creditors, with proceeds going to Windstream. According to the press release, the figures are based on the closing price of Uniti’s shares on a specific date. The goal is for Uniti to pay Windstream $244.5 million of proceeds from the sale of the Uniti stock to the Windstream creditors.
Uniti also agrees to pay Windstream $400 million in quarterly cash installments over five years with interest for a total of $432 million to $490 million. In addition, Uniti agrees to purchase certain Windstream-owned fiber assets for $40 million. The assets include certain fiber IRU contracts generating $8 million of annual EBITDA and .4 million fiber strand miles covering 5,100 route miles.
The proposed Uniti Windstream settlement calls for two new leases to replace the existing master agreement between the two companies. One of the new leases would include areas where Windstream is the incumbent local carrier and the other would include areas where Windstream is a competitive carrier.
The initial aggregate annual rent under the new leases will be equal to the annual rent under the master lease agreement. Importantly, the new leases “will be cross-guaranteed and cross-defaulted unless Windstream ceases to be the tenant under one of the new leases,” according to a press release posted on the Uniti and Windstream websites.
Uniti agrees to invest up to $1.75 billion in fiber and related assets in certain Windstream ILEC and CLEC properties over the initial term of the new leases. According to a separate Windstream press release, that means through 2030. These investments are referred to as “growth capital improvements” and on the first anniversary of the initial growth capital improvement investment, the annual rent that Windstream pays Uniti will increase by an amount equal to 8% of such new investment, subject to a .5% annual escalator.
Uniti will be permitted to transfer its rights and obligations and otherwise monetize the new leases as long as the company does not transfer interests to a Windstream competitor. The new leases will require that Windstream comply with certain covenants and any default will relieve Uniti of its obligations to fund growth capital improvements.
The PSA with First Lien Creditors
According to Windstream, the company’s PSA with first lien creditors provides for:
- A substantial reduction of the company’s existing funded debt by more than $4 billion
- A substantial reduction of the company’s annual debt service obligations
- Access to exit financing to allow Windstream to pursue its strategic goals after emergence from Chapter 11
Fiber Investment Details
Today’s press release includes some additional details about the fiber investment plans included in the proposed Uniti Windstream settlement.
In CLEC territories, Uniti would have the option to require that fiber deployments be engaged in jointly, with Uniti funding 50% of the total fiber deployment cost and owning and operating any excess new strands deployed beyond Windstream’s forecast.
Windstream agrees to transfer certain dark fiber indefeasible rights of use (IRU) contracts that currently generate approximately $21 million in annual EBITDA to Uniti. Windstream also agrees to relinquish its rights to use 1.8 million fiber strand miles that are unutilized or associated with these IRUs.