Sep. 26, 2017 11:14 AM ET|About:
Windstream Holdings, Inc. (WIN)|By:
Jason Aycock, SA News Editor
Windstream Holdings (NASDAQ:
WIN) is off 5.6% after receiving a notice of default from a large noteholder over transactions around the spin-off of its REIT unit Communications Sales & Leasing.
The notice -- from a holder claiming more than 25% of the 6.375% senior notes due 2023 (Bloomberg says that's Aurelius Capital Management) -- alleges that asset transfers and associated leases in April 2015 were essentially a sale-and-leaseback transaction.
That doesn't comply with the covenants covering sale and leaseback, the noteholder says.
Windstream denies that the transactions are a sale-leaseback.
Moody's says Windstream's noteholder claim notice raises uncertainty, ratings unchanged at B1 negative
Global Credit Research - 26 Sep 2017
New York, September 26, 2017 -- Moody's Investors Service, ("Moody's") said that Windstream Services, LLC ("Windstream" or "the Company") announcement that it received a notice of default from an unsecured creditor raises uncertainty around Windstream's ability to access the capital markets, which could threaten its liquidity. However, because the company has no near term maturities and the outcome of the notice is uncertain, Moody's has not changed Windstream's B1 corporate family rating (CFR). The outlook remains negative.
Windstream announced yesterday that a holder of at least 25% of the company's 6 3/8% senior notes due 2023 has alleged the Company violated the terms of the indenture governing the notes and that an event of default has occurred. The notice alleges the violation occurred as part of Windstream's spinoff of assets to Communications Sales & Leasing, Inc. (now known as Uniti Group, Inc. "Uniti") in April of 2015. Moody's views this disclosure as a negative event that raises uncertainty around Windstream and which could further impede Windstream's ability to access the capital markets. If the issue is not resolved quickly and in favor of the company, Windstream could encounter difficulties accessing funds to refinance its debt maturities, most notably the company's revolving credit facility and term loan B-6 which, under certain circumstances, both mature in April of 2020.
Moody's believes that Windstream's limited financial flexibility exposes it to a potential deterioration of liquidity if the issue drags on for a prolonged period, especially if negative market forces continue to be amplified by the disclosure of the notice of alleged default. This uncertainty, combined with Windstream's weak operating results, adds more downward pressure on Windstream's B1 CFR. Moody's could lower Windstream's rating if the company's liquidity deteriorates and it is not able to meet 18 months of cash requirements with its committed liquidity (i.e. cash or available bank line). In addition, Moody's could downgrade Windstream if its operating trends remain weak, if leverage (Moody's adjusted) remains above 5.25x or free cash flow is negative on a sustained basis. Based on results through the second quarter, Moody's estimates Windstream's leverage (pro forma for acquisitions, but excluding synergies) will be around 5.1x (Moody's adjusted) at year end 2017.
