Windstream Announces Exchange Offers, Consent Solicitations After Status Conference on U.S. Bank Litigation Alleging Default Related to 2015 Uniti Spinoff

After a hearing Wednesday afternoon on the alleged default under the indenture governing the 6.375% senior notes due 2023 issued by Windstream Services, parent company Windstream Holdings announced late Wednesday night a series of debt exchange offers and consent solicitations with respect to a number of different senior notes issued at Windstream Services. The company also announced that in conjunction with the exchange offers and consent solicitations, it will offer approximately $250 million of new secured notes.

Wednesday’s hearing followed a series of back-and-forth filings from both Windstream and U.S. Bank, the indenture trustee to the 6.375% senior notes due 2023, regarding an alleged default stemming from the 2015 spinoff of Uniti Group, formerly known as Communications Sales and Leasing. Windstream recently added Aurelius to its counterclaim in the ongoing Southern District of New York litigation, alleging that the fund has attempted to manufacture an event of default.

As described further below, the transactions appear to focus on the senior notes at the heart of the ongoing litigation by offering additional 6.375% senior notes due 2023 and subsequently seeking consent solicitations from that tranche of notes and others to proposed waivers and amendments with respect to certain alleged defaults stemming from the spinoff.

According to the press release, the exchange offers, if accepted, “will provide the company with an extended maturity profile and enhance its liquidity position over the coming years.” The company notes that the consummation of the exchange offers is “subject to certain conditions, including a minimum issuance condition and a consent condition, as described in the Offering Memoranda.”

Each of the exchange offers will expire on Nov. 14 at 11:59 p.m. ET, unless extended, and the early tender date for each exchange offer is Oct. 31 at 5 p.m. ET. The deadlines for the consent solicitations are dependent on the specific solicitation.

2022/2023 Exchange Offers

According to the press release, the company is offering to exchange any and all of its 7.50% senior notes due 2022 and 7.50% senior notes due 2023 for new 6.375% senior notes due 2023. The proposed consideration for the 2022/2023 exchange offers is summarized below:

The press release states that in addition to the consideration, the company will pay in cash accrued and unpaid interest on the 2022 notes and 2023 notes accepted in the 2022/2023 exchange offers “from the applicable latest interest payment date to, but not including, the applicable settlement date with respect to the 2022/2023 Exchange Offers.” The release also states that interest on the new 6.375% notes will accrue from the date of first issuance of such notes.

2021 Exchange Offer

Under the 2021 exchange offer, the company is offering to exchange its 7.75% senior notes due 2021 for new 6.375% notes, or, subject to certain conditions set forth below, new 8.625% senior secured notes due 2025. The consideration for the proposed 2021 exchange offer is set forth below, which outlines three options for the holders of the 2021 notes:

• Option 1: Exchange any and all of their existing 2021 notes for new 6.375% notes.
  
• Option 2: Exchange 2021 notes for up to a maximum aggregate principal amount of $50 million of new secured notes, referred to as the new secured notes 2021 maximum exchange amount, and to the extent the aggregate principal amount of the 2021 notes validly tendered (and not validly withdrawn) in the 2021 exchange offer would result in the issuance of new secured notes in excess of the new secured notes maximum 2021 exchange amount, either:
  
  • Option 2a: exchange any and all 2021 notes validly tendered (and not validly withdrawn) in excess of the aggregate principal amount of 2021 notes that may be exchanged for new secured notes pursuant to the 2021 exchange offer for new 6.375% notes; or
    
  • Option 2b: exchange the excess 2021 notes for new 6.375% notes subject to a maximum exchange amount of $587 million, minus the aggregate principal amount of any new 6.375% Notes to be issued pursuant to the 2021 exchange offer and the 2022/2023 exchange offer, which is determined as of the early tender date for the 2021 exchange offer.

  Similar to the 2022/2023 exchange offers, the proposed 2021 exchange offer provides that in addition to the consideration set forth above, the company will also pay in cash accrued and unpaid interest on the 2021 notes accepted in the 2021 exchange offer “from the applicable latest interest payment date to, but not including, the applicable settlement date.” Interest on the new secured notes and new 6.375% notes will accrue from the date of first issuance of the new secured notes and new 6.375% notes, as applicable.

  2020 Exchange Offer

  Under the 2020 exchange offer, the company is offering to exchange its 7.75% senior notes due 2020 for new secured notes. The press releases summarizes the consideration offered in the 2020 exchange offer as follows:
  

  In addition to the consideration in the 2020 exchange offer, the company will pay in cash accrued and unpaid interest on the 2020 notes accepted in the 2020 exchange offer “from the applicable latest interest payment date to, but not including, the applicable settlement date.” The press release states that interest on the new secured notes will accrue from the date of first issuance of such notes.

  Consent Solicitations

  According to the release, Windstream launched consent solicitations with respect to the 2020 notes, 2021 notes, 2022 notes and 2023 notes, seeking consents to waive certain alleged defaults with respect to transactions related to the spinoff of Uniti Group Inc. and to amend indentures with respect to the waivers and amendments. Such consent solicitations require consent from a majority of the holders of each series of notes. Consent payments would be owed in the amount of $2.50 per $1,000 principal amount of the applicable series of notes to holders who consent by Tuesday, Oct. 24, at 5 p.m. ET.

  In addition, Windstream launched a consent solicitation, requiring consent from a majority of holders of its existing 6.375% senior notes due 2023 and the new 6.375% notes. “If the requisite consents are received and the consents become effective,” the release adds, “the company will make a consent payment to holders who validly deliver (and do not validly revoke) their consent on or prior to 5:00 p.m., New York City time, on Nov. 2, 2017, unless extended.” Holders of these notes who consent by Oct. 24, at 5 p.m. ET would receive a consent payment of $2.50 per $1,000 principal amount, and noteholders who consent after Oct. 24, at 5 p.m. ET but before Nov. 2, at 5 p.m. ET would receive a consent payment of $2 per $1,000 principal amount of the notes.

  The company says it “denies that any alleged default has occurred and has filed a complaint seeking a judicial declaration that there has been no default in connection with the Spin-Off and related transactions.”

  New Offering

  The press release also provides that the company expects to offer approximately $250 million of new secured notes and to use the proceeds from any new offering to refinance a portion of amounts owed under its senior secured revolving credit facility.
  

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