Photograph of Shaunak Mirashi
The battle between the Aurelius Capital Management hedge fund and the network communication company
(WIN) keeps getting more cattier.
Judge Jesse Furman of the Federal District Court in Manhattan said Friday night that Windstream sold its fiber optic cable business in 2015 to a real estate investment trust called
(UNIT) breached the bond commitments, as Aurelius had stated in September 2017. Aurelius had claimed that Windstream owed a full refund, plus interest, which would amount to about $ 300 million at the time. Aurelius and a total of $ 5.7 billion, according to Bloomberg Intelligence. Windstream said that such a bill would bankrupt it.
The court dismissed Windstream's counterclaims against the hedge fund and sentenced Aurelius to a judgment of more than $ 310 million. CreditSights has termed it "breathtaking development".
Windstream's shares fell 61% on Tuesday, and Uniti – which depends on Windstream for lease payments – slid more than 37%.
"We are disappointed and frankly surprised by the decision and will take immediate steps to implement all available options, including post-trial motions and an appeal," said Tony Thomas, President and CEO of Windstream, in a statement. a statement on Friday. "We will work with our creditors on the next course of action."
Aurelius answered Tuesday. She said the fund was "gratified" by the judge's decision. So what:
"Windstream's overtures to Judge Furman's well-reasoned decision, rendered after a multi-day trial and several volumes of exhibits and briefings, have only the slightest merit of constancy in greeting her." said the hedge fund in a statement.
"We take no pleasure in the financial situation that results for Windstream. Windstream could have easily avoided it – first of all by not playing fast with its ticket holders in 2015, hoping that no one would hold the company accountable, and then by settling . Instead, Windstream wasted an exorbitant amount – more than would have been required to settle with us at that time – following an ineffective exchange offer and then litigation. "
This, according to the credit market players who monitor the situation closely, is fair enough: Windstream has chosen to fight back, perhaps wrongly. Aurelius is notoriously tedious and aggressive, so if the reputation was a guide, installing it would certainly have been the cheapest choice.
"In our opinion, a management and board of directors with an extreme and unjustified assessment of Windstream's legal case chose to bet on the company," said Aurelius. "The company has lost."
With regard to Windstream's intention to appeal: "This is good news for our fund because it will require Windstream to post a bond in excess of $ 300 million", which would fully pay the notes held by Aurelius "when" the company will lose, said the fund.
"We are pleased to extend the credit of the bonding company to that of Windstream."
Coarse. But pretty on the mark! Aurelius was founded by a former bankruptcy lawyer and is recognized in the world of distressed debt investors, which is already a contentious place, to be the most aggressive and strict opponent. If you say something in a business document, you have to say it sincerely, and Aurelius will know if you deviate from a clear and clear interpretation of what you said. They have special skills that make it a nightmare for companies like you.
It is possible to see this as a refreshing repression after years of issuing companies in bulk. In a context of a recovery in the multi-year bond market, while companies were issuing more and more debt, bond fund managers invested in money had to fight for new issues, which meant not respecting the restrictive clauses. who offered them less and less protection. So now, these skeletal alliances are being applied – is it so bad?
Here, maybe yes: Windstream serves communities that otherwise have limited access to connectivity. In about 20% of its areas of operation, the area has no other choice. This represents a high cost for slightly abusive business behavior (which no creditor objected to at the time).
Oh, one more thing: Windstream had sought to "fix" Aurelius' defect. So when the initial battle was raging, he asked the other bondholders to see if they would exchange what they held for Aurelius-level bonds, diluting the hedge fund. A condition of this exchange: the bondholders would vote in favor of the waiver of any default, if there was one, what they did not say. The bondholders accepted and voted in favor of lifting the default.
The creditors of this obligation had their last word in the engraving book of Aurelius' public statement:
"Noteholders who have chosen to play the game even after it has broken its promise, we wish you good luck with your exchange tickets. Between their doubtful status and their [bond price] risk of bankruptcy, we think you will need it. "
Write to Mary Childs at [email protected]