Windstream Holdings Inc (NASDAQ: WIN) could be exposed to the risk of bankruptcy following a court decision that found that the telecommunications service provider had defaulted on its obligations.
The US District Court in the Southern District of New York ruled in favor of Aurelius, a hedge fund that held a significant position on certain notes – mainly unsecured senior notes due in 2023 issued by Windstream.
In a lawsuit filed by the US Bank National Association in October 2017 on behalf of Aurelius, Aurelius alleged that Windstream breached a covenant in the bond debt agreement that restricts sale and leaseback transactions.
Windstream sold its copper and fiber subsidiary in 2015, with the name change of the subsidiary: Uniti Group Inc (NASDAQ: UNIT). The unit was organized as a REIT for tax purposes.
Windstream sold to Uniti significant telecommunications assets it held in exchange for shares in Uniti; $ 1.035 billion in cash; and a debt of $ 2.5 billion, then transferred assets to Uniti.
This sale and leaseback agreement breached the agreement for at least its senior notes maturing in 2023 and resulting in a default on December 7, 2017.
The court ruled that Aurelius was entitled to receive $ 310.46 million in damages, plus $ 61,347.50 per day of interest after July 23, 2018.
In response to the court's verdict, Windstream announced that it would appeal the decision.
"We are disappointed and frankly surprised by the decision and will take immediate action to search for all available options, including post-trial motions and an appeal," said CEO Tony Thomas.
The court decision may set a precedent, as it is expected that other bondholders may also sue Windstream. Inability to pay creditors could force Windstream to declare bankruptcy.
Since the company decided to appeal, the resolution could take years.
After the negative verdict, Windstream announced Tuesday its decision to postpone the publication of its quarterly results, originally scheduled for February 21. The company now plans to release its earnings report no later than March 18th.
"Aurelius will maintain with the other parties and draft a judgment in accordance with the foregoing, and file it with the FEC for approval by the Court no later than February 25, 2019", in accordance with the court order Friday.
Windstream shares were down 61.28% to $ 1.30 at the time of publication Tuesday.
Uniti, which derives about two-thirds of Windstream's revenue, fell 37.59% to $ 12.47.
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