Windstream is in Bankruptcy. The bankruptcy was triggered by a lawsuit over a leaseback with UNITI that broke the loan covenant that Aurelius identified and leveraged.
Now Windstream is heading to court with UNITI over the lease. What happens if the court finds that the lease was not a lease, but was in fact financing? Does that mean that the leaseback clause that Aurelius won with is void? Will that ruling then be appealed?
This thing gets more convoluted every day.
If the lease with UNITI stands, Windstream gets liquidated.
If WIND gets liquidated, UNITI will have to file BK too since 60% of its revenue is from Windstream.
That leaves a huge hole in telecom with ripple effects to many carriers (who buy from UNITI or WIND) and customers of Windstream and all the carriers that UNITI acquired (Hunt, PEG, TowerCloud, Southern Light, Bluebird and others).
Everyone wants to blame Aurelius for this, but the REIT spin-off of UNITI (then called CS&L in 2014) was a way for Windstream to stay ahead of its debt. Windstream Holdings sits on $5.8B in debt (100x its market cap). UNITI sits on $5B in debt (5x market cap). With revenue declining this quarter for WIND, it is hard to see how they pay off the debt that primarily matures in 2020.
The executives are waiting on $20M in bonuses but with revenue declining, are they still entitled to it? When do the execs head for the exits?
This is the problem with getting bigger via an LBO strategy. (LBO stands for leveraged buy-out, whereby a PE firm takes a company private like say Avaya and then gets buried by the debt. It is 1980s style business.) AT&T and Verizon are sitting on ridiculous debt – over $100B each. How sustainable is that in flat markets with declining consumer buying power?
UPDATE based on WIND 3Q2019 prezo: Notice the attention to ILEC consumer broadband (note USF, CAF & USDA monies fund some of this build). Kinetic is a late to market U-Verse knock-off. The carrier cannot move the needle with consumer sales.
Fixed wireless tests is a nice promo piece but there isn’t any revenue in that for a while. The 2,700 SD-WAN Customers Under Contract is decent. The 535K UCaaS seats is a lot less than the top UC players who have 1M+ seats – even Avaya has 650K IP Office seats. Not any highlights in that report.