On the heels of a major court judgement against its key customer Windstream, Uniti Group has sold its Latin American towers to Phoenix Tower International for $100 million in cash. The sale comprised 500 towers located across Mexico, Colombia and Nicaragua. Uniti’s stock, which went down 37 percent yesterday, rose 5.2 percent in early trading but closed down nearly 2 percent today.
Kenny Gunderman, president and CEO of Uniti, said, “This transaction realizes substantial value for our stockholders and allows us to focus on the vast communications infrastructure growth opportunities in the United States. Uniti Towers will continue to be a significant component of our ongoing strategy to provide a full suite of solutions to wireless carriers and other customers.”
The transaction with PTI is subject to customary closing conditions and is expected to close by March 31, 2019. Citi served as exclusive financial advisor to Uniti in connection with this transaction.
The tower sale comes on the heels of a $310 million judgement against Windstream Holdings, one of Uniti Group’s largest customers.
U.S. District Court of the Southern District of New York ruled in favor or Aurelius Capital Management, a hedge fund that had accused Windstream of violating the covenants of its bonds when it sold and leased back its assets to CS&L (now Uniti).
As a result of the judgement, which will be appealed, Aurelius will be awarded $310.5 million.
“This move has not only thrown serious doubt into whether or not Windstream can survive, but has also created real worries for Uniti even as the company continues to diversify away from its former parent,” wrote Daniel Jones, Crude Value Insights.
Wells Fargo Securities focused on the impact of the judgement on Uniti Group, because Windstream’s lease payment represents 69 percent of Uniti’s revenue.
“In our view, [Windstream’s lease payment] clearly will not happen given Friday’s ruling. As of Sept. 30, 2018, [Uniti] had ~$330 million in total liquidity,” wrote Jennifer Fritzsche, Wells Fargo senior analyst. “Recall from our downgrade of the shares in mid-January, based on our math, we did not see a simple path for Uniti to fund its ~$430 million annual dividend from its own internally generated cash flow. This task gets a lot more complicated in the wake of Friday’s ruling.”
Aurelius, which owns a majority of Windstream’s 6.375 percent 2023 Senior Notes, said in a prepared statement, “We take no pleasure in Windstream’s resulting financial predicament. Windstream could easily have averted it – first by not playing fast and loose with its noteholders in 2015, hoping nobody would hold the company to account, and second by settling.”
Uniti Group owns about 600 to 1,000 towers, but it is not a large percentage of its business. Nevertheless, the number of towers would make it a mid-sized tower company if it were purely a tower company.
As part of the sale/lease back, which was completed in 2015, a wholly-owned subsidiary of Windstream contributed telecom assets in exchange for stock in CS&L (now Uniti), $1.035 billion, and $2.5 billion in debt. The deal brought Uniti onto the market as a REIT.
“The objective of this move was to create a tax-advantaged vehicle known as a REIT through which investors could receive preferential tax treatment on earnings so long as those earnings are passed on to shareholders in the form of distributions,” wrote Jones.