Windstream Prepares Bankruptcy After Losing Default Case

(Bloomberg) -- Windstream Holdings Inc. is preparing to file for bankruptcy, according to people with knowledge of the plans, after a court sided with claims by Aurelius Capital Management that the rural telecom company defaulted on its debt.

A filing seeking protection from creditors could come as early as today, according to the people, who asked not to be named discussing private negotiations. The shares fell as much as 32 percent before they were halted for pending news. The cost to protect against a default by Windstream, which has about $5.8 billion of outstanding bonds and loans, jumped to a record.

Windstream’s fate took a turn for the worse on Feb. 15 when a federal court ruled that the 2015 spinoff of its Uniti Group Inc. business violated its financial covenants. Aurelius, the hedge fund led by Mark Brodsky, argued the deal cheated bondholders because it stripped value from the assets backing their securities.

The decision gave Aurelius a $310 million judgment, and Windstream had warned a defeat could lead to bankruptcy or liquidation. The default ruling entitles other creditors to demand immediate repayment on debts they hold.

A representative for the Little Rock, Arkansas-based company declined to comment on its plans. Representatives for law firm Kirkland & Ellis LLP, which is said to be working with Windstream, didn’t immediately respond to requests for comment.

Uniti Falls

Shares of Uniti Group fell as much as 10 percent. The company gets more than two-thirds of its revenue from a master lease that gives Windstream the exclusive right to use the Uniti’s telecommunications network assets. That lease could be in jeopardy because of the sizable expense of the lease to Windstream -- more than $650 million a year -- and bankruptcy proceedings often lead to revision or rejection of existing contracts.

Windstream has about 1.4 million consumers and small businesses in 18 states and is dependent on Uniti to serve them, making a complete severance of their contract less likely. Uniti has said “the validity of our master lease agreement with Windstream was not impacted by the ruling, and access to our network remains critical to Windstream’s operations and its ability to serve its customers.”

Chief Executive Officer Tony Thomas said in a statement after the ruling Windstream was “taking immediate steps to pursue all available options, including post-trial motions and an appeal,” and that it was planning to “work with our creditors on the next course of action.”

The company may be running short on cash because it may no longer be allowed to tap its revolving credit line now that it’s been ruled in default, analysts have said. “We would not be surprised if Windstream filed Chapter 11 before March 31,” analysts at Citigroup wrote.

To contact the reporters on this story: Eliza Ronalds-Hannon in New York at eronaldshann@bloomberg.net;Sridhar Natarajan in New York at snatarajan15@bloomberg.net;Allison McNeely in New York at amcneely@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Dan Wilchins

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