This morning Uniti Group responded in defense of its lease payments from Windstream after filings from UMB Bank NA and U.S. Bank NA. According to the Wall Street Journal on Friday, these creditors are seeking to have Windstream withold its $54M in monthly rent to Uniti for its fiber network.
The underlying deal in which Windstream spun off Uniti four years ago and rented back its fiber came back to haunt Windstream in a big way this spring when it lost a big lawsuit to Aurelius Capital Management and was driven into chapter 11 bankruptcy protection. Now creditors are looking to undo or redo the deal in an effort to extract more value from the deal. By pushing to withold lease payments, they likely hope to pressure Uniti into greater modifications of the lease terms than they might otherwise be able to get.
According to Uniti CEO Kenny Gunderman, Uniti continues “to believe that the lease is a true lease”, but also states that the company is “open to working with Windstream and its constituents on mutually beneficial modifications to the lease”. By mutually beneficial here, I suppose one means the banks get more money back and Uniti gets to stay in business. I earlier wondered about the actual mechanism by which Uniti might get dragged into all this despite four years of water under the bridge, but I guess now I know.
It seems crazy that lease payments could be withheld for the infrastructure Windstream’s business depends on, since that would risk undermining more value than it creates. If they aren’t paying for the infrastructure, how can they continue to provide phone and data services across it? Yet the actual ownership is pretty passive, as it’s not Uniti that has crews out there maintaining these particular physical assets for the most part. Even so, if the lease is undone, what about the ownership stake Windstream gained (and later sold) and the debt it unloaded to acquire that lease in the spinoff. It only gets messier.
Clearly the likeliest end result is a renegotiated lease, but it won’t be a pleasant summer for anyone but the lawyers until that happens.
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