Windstream Bankruptcy Filing Will Help Struggling Telecom 'Reorganize' Finances

Windstream, a provider of networking and communications solutions, has filed for Chapter 11 bankruptcy protection.

The decision to file for "voluntary reorganization" this week came after Windstream lost its court battle with U.S. hedge fund Aurelius Capital Management, a Windstream bond holder, when a federal court in New York last Friday ruled Windstream defaulted on its bonds in 2015 when it spun off some of its telecom assets into a company called Uniti Group.

As part of the court ruling, Windstream must pay Aurelius $310 million.

[Related: Shrinking Windstream Sells Off EarthLink's Consumer Internet Assets]

In its bankruptcy filing on Feb. 25 in the U.S. Bankruptcy Court for the Southern District of New York, Windstream said that it has more than 100,000 creditors. Some of the largest creditors, according to the filing, include U.S. Bank National Association, with a claim of more than $1 billion in bond debt; AT&T, which claims more than $49.55 million; Verizon, with a claim of $34.05 million; and CenturyLink, claiming more than $7 million is owed to the company.

The filing, the company said, will allow the company to continue to operate while "reorganizing" its finances.

"Following a comprehensive review of our options, including an appeal, the board of directors and management team determined that filing for voluntary Chapter 11 protection is a necessary step to address the financial impact of Judge Furman's decision and the impact it would have on consumers and businesses across the states in which we operate," said Windstream CEO Tony Thomas in a statement. "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."

Little Rock, Ark.-based Windstream said in its statement that it has received a commitment from Citigroup for $1 billion of financing to help make it through bankruptcy.

Windstream has been struggling as of late. The telecom service provider last month sold off its consumer internet assets that it acquired from EarthLink in 2017 to Dallas-based private equity firm Trive Capital for $330 million in cash. Windstream at the time told CRN that that transaction did not impact Windstream/EarthLink's business segment.

In December, Windstream also revealed plans to sell certain fiber assets in Minnesota and Nebraska to Arvig Enterprises Inc., a Minnesota-based telecom and broadband service provider, for $60.5 million.

"They've lost a lot of senior executives in recent years. I think it's been a matter of upper management change, and the fact that [partners] haven't had established channel leaders asking us, 'how can we do business with you?" according to one Windstream channel partner who requested anonymity. "The service providers we do the most business with are proactive in reaching out to partners to establish and improve that relationship."

Windstream began an acquisition spree in 2010 when it bought four different local exchange carriers and data center and hosting providers. In 2014, the company acquired broadband provider Business Only Broadband, and in 2017, it closed on its EarthLink and Broadview Networks deals.

Windstream may have gotten ahead of itself and tried to merge with too many other service providers, the Windstream channel partner said. "How do you do that in that short a time frame and still stay successful?"

The partner said that so far they haven't received any notification from Windstream that their monthly residual payments would be affected by the bankruptcy filing.

Windstream did not respond to CRN's request for comment on how its bankruptcy filing would impact its indirect sales business before publication.

“I want to express my appreciation for the continued focus of the entire Windstream team as well as the loyalty and patience of our customers, vendors, channel partners and other stakeholders,” Thomas said in his statement. “With approval from the Court, we will continue paying our employees, maintaining our relationships with our vendors, and business partners and serving our customers as usual."

The company had 12,979 employees as of the end of 2017, according to an SEC filing.

Windstream stock was up 5.5 percent on Tuesday -- the day after the bankruptcy filing -- rising to 47 cents per share.