Windstream Holdings, Inc. – Files Chapter 11, Cites Predatory Use of Credit Swaps by Aurelius Capital and Questions Court Ruling that Cross-Defaulted Through Capital Structure

February 25, 2019 − Windstream Holdings and more than 200 affiliated Debtors (NASDAQ: WIN; “Windstream” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 19-22312. The Company, a FORTUNE 500 company and a leading provider of advanced network communications and technology solutions, is represented by Stephen E. Hessler of Kirkland & Ellis. Further board-authorized engagements include (i) PJT Partners LP, as financial advisor and investment banker, (ii) Alvarez & Marsal North America as restructuring advisor and (iii) Kurtzman Carson as claims agent. The Company’s petition notes more than 100,000 creditors, estimated assets of $13.1bn and estimated liabilities of $11.2bn. 

Documents filed with the Court list the Company's five largest unsecured creditors as (i) U.S. Bank National Association ($806.9mn bond debt), (ii) U.S. Bank National Association ($105.8mn bond debt), (iii) U.S. Bank National Association ($78.1mn bond debt), (iv) U.S. Bank National Association ($70.1mn bond debt) and (v) AT&T ($49.6mn trade debt). All 50 of the Debtors' list of top 50 unsecured creditors hold claims in excess of $1mn.

In a press release announcing the filing, the Company stated that it intends to use the court-supervised process to address debt maturities that have been accelerated as a result of the recent decision by Judge Jesse Furman in the Southern District of New York against Windstream Services, LLC, a subsidiary of the Company.

Windstream in unequivocal as to why it finds itself seeking Chapter 11 protection, citing (i) the “predatory market manipulation” of Aurelius Capital Management (“Aurelius”) to advance its own financial position through credit default swaps and (ii) the willingness of Judge Jesse Furman (whom it calls out several times by name) to rule in favor of Aurelius and trigger a cross-defaulting collapse of the Company’s capital structure.The Company also defends its operational health, noting that it "did not arrive in Chapter 11 due to operational failures and currently does not anticipate the need to restructure material operations."

Tony Thomas, president and chief executive officer of Windstream, stated “Following a comprehensive review of our options, including an appeal, the Board of Directors and management team determined that filing for voluntary Chapter 11 protection is a necessary step to address the financial impact of Judge Furman’s decision and the impact it would have on consumers and businesses across the states in which we operate.Taking this proactive step will ensure that Windstream has access to the capital and resources we need to continue building on Windstream’s strong operational momentum while we engage in constructive discussions with our creditors regarding the terms of a consensual plan of reorganization. 

DIP Financing

The press release notes that Windstream has received a commitment from Citigroup Global Markets Inc. for $1bnn in debtor-in-possession (“DIP”) financing which will allow it to meet Windstream’s operational needs and continue operating its business as usual.

Southern District of New York Decision

As previously detailed by the Company in a February 15, 2019 press release, and further detailed in the current press announcement, "Judge Furman ruled that Windstream Services, LLC’s 2015 spinoff of certain telecommunications network assets into a real estate investment trust (REIT) violated its agreements with bondholders. The decision arose from challenges by Aurelius Capital Management ('Aurelius') and U.S. Bank National Association that the spinoff was invalid under the terms of those agreements."

Commenting further on the Court ruling Tony Thomas added, “Windstream strongly disagrees with Judge Furman’s decision. The Company believes that Aurelius engaged in predatory market manipulation to advance its own financial position through credit default swaps at the expense of many thousands of shareholders, lenders, employees, customers, vendors and business partners. Windstream stands by its decision to defend itself and try to block Aurelius’ tactics in court. The time is well-past for regulators to carefully examine the ramifications of an unregulated credit default swap marketplace. Windstream did not arrive in Chapter 11 due to operational failures and currently does not anticipate the need to restructure material operations.

The effect of Judge Furman’s decision was that an event of default under the relevant indenture had occurred that had not been cured or waived. The acceleration of the obligations outstanding under such indenture gave rise to a cross-default under the indentures governing Windstream’s other series of secured and unsecured notes. In addition, the decision gave rise to a cross-default under the credit agreement governing Windstream’s secured term and revolving loan obligations."

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