Windstream Holdings stock lost more than 60 percent of its value, and Uniti Group lost more that 37 percent, after 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 Group).
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.
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 transaction, which was completed in 2015,a wholly-owned subsidiary of Windstream contributed telecom assets in exchange for stock in 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.