Windstream Files Ch. 11 Following $310 Million Judgment

Telecommunications company Windstream Holdings on Monday filed for Chapter 11 in a New York bankruptcy court in the wake of a federal court ruling this month that a 2015 real estate spinoff put it in default of senior notes and owing a hedge fund more than $310 million.

In an announcement Monday, Windstream said after considering its options, including appealing U.S. District Judge Jesse Furman's Feb. 15 decision in favor of Windstream noteholder Aurelius Capital Management in New York federal court, the company's board of directors decided bankruptcy was the best option for the company's long-term financial stability.

"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," CEO Tony Thomas said in a statement.

According to Judge Furman's ruling, Aurelius filed a default notice in 2015 claiming that Arkansas-based Windstream's decision to spin off a real estate investment trust violated the terms of senior unsecured notes held by Aurelius.

The transaction also sparked a shareholder class action that was settled in June for $10.5 million.

Aurelius also claimed after it filed suit in 2017 that Windstream attempted to create new noteholders to outvote Aurelius and waive any default triggered by the REIT spinoff, but that the issuing of the new notes also violated the terms of the indenture.

Judge Furman's opinion said Windstream's "financial maneuvers and many of its arguments here are too cute by half" and found the REIT spinoff triggered a default on the notes and that the new 2017 notes — while still valid debt — did not create the votes needed to waive the default. He awarded Aurelius nearly $310.5 million.

In Monday's announcement, Windstream said it "strongly" disagreed with the 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," Thomas said in the announcement.

Representatives of Aurelius did not immediately respond to requests for comment late Monday.

In the announcement, Windstream said it has secured $1 billion in debtor-in-possession financing from Citigroup Global Markets Inc. and that this would allow it to continue normal operations.

Kris Monteith, chief of the U.S. Federal Communications Commission's Wireline Competition Bureau, said in a statement Monday she was " pleased that Windstream has made clear that its reorganization in bankruptcy will not disrupt service to any consumers."

The petition said the company has retained PJT Partners LP as financial adviser and Alvarez & Marsal North America LLC as restructuring adviser.

Windstream is represented by Stephen E. Hessler, James H.M. Sprayregen, Marc Kieselstein, Ross M. Kwasteniet, Cristine Pirro Schwarzman, Brad Weiland and John R. Luze of Kirkland & Ellis LLP.

The case is In re: Windstream Holdings Inc., case number 19-22312, in the U.S. Bankruptcy Court for the Southern District of New York.