Windstream Holdings – Court Approves Plan that Sees Holders of $2.35bn of Notes Claims Recover Nothing; Debtors, with $750mn Equity Infusion, Set to Emerge Owned by Elliot Management and Other First Lien Lenders in Mid-August

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June 25, 2020 – The Court hearing the Windstream Holdings cases confirmed the Debtors' First Amended Joint Chapter 11 Plan of Reorganization. Judge Robert Drain left several large stakeholders deeply disappointed with his order approving a Plan which Judge Drain himself conceded was an "unfortunate result, obviously."

The Court's Plan confirmation order was filed on June 26th [Docket No. 2243].

On February 25, 2019, Windstream Holdings and more than 200 affiliated Debtors (NASDAQ: WIN; “Windstream” or the “Company”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 19-22312. At filling, the Debtors, a leading provider of advanced network communications and technology solutions, noted estimated assets of $13.1bn and estimated liabilities of $11.2bn.

Still on the table during a lengthy Plan confirmation hearing beginning on June 23rd were objections from (i) the Debtors' Official Committee of Unsecured Creditors (the "Committee"), (ii) indenture trustees UMB Bank, National Association and U.S. Bank National Association (the "Indenture Trustees") and (iii) the United States Trustee assigned to the Debtors' cases, the latter arguing that confirmation should be denied because pf the Plan’s proposed third-party release provision.

The Committee and the Indenture Trustees had objected to the Plan, inter alia, because it (from Committee objection) "improperly funnels to the First Lien Creditors the value of significant unencumbered assets—including, but not limited to, proceeds of the Uniti Settlement (the 'Settlement Value' [estimated at $1.2bn]), other estate avoidance claims, and the Debtors’ real estate interests—all of which instead must be distributed to unsecured creditors."

The Debtors rejected this argument as coming from creditors who were asking "for a larger slice of the pie they did not help bake," urging the court to accept the basis premise that it was only their first lien lenders who deserved any of the pie, both because they stood on top of a waterfall that left even their senior claims impaired and because it was those first lien lenders who had baked the pie by "among other things, agree[ing] to fund a $750 million equity investment to fund the Debtors’ emergence and equitize a substantial portion of their more than $3 billion in secured claims."

The combination of impairment of the first lien lenders' debt ($3,151.0mn and with an estimated recovery of 62.8-71.3%) and a $750.0mn equity infusion was enough for Judge Drain to agree with this assessment and confirm a Plan which will leave the Debtors 100% owned by Elliott Management Corp. and other first lien lenders when the Debtors emerge from bankruptcy (expected mid-August).

in a press release heralding the plan's confirmation, the Debtors stated: "Upon emergence, the Company will reduce its debt by more than $4 billion or approximately two-thirds and have access to approximately $2 billion in new capital to expand 1 Gig Internet service in rural America and maintain its product and software leadership in SD-WAN and UCaaS for enterprise customers. This deleveraging and new financing will allow Windstream to re-focus its allocation of resources on growing the business and better positioning the Company for the long term….The Company expects to complete its financial restructuring process and emerge from Chapter 11 bankruptcy protection as a privately held company in late August."

Tony Thomas, the Debtors' President and Chief Executive Officer, added: "When we emerge, our lenders will become our new owners and strategic partners and are aligned with our long-term strategy and mission to deliver quality and reliable services."

Plan Overview

The Disclosure Statement [Docket No. 1813] notes, “The Plan contemplates, among other things, the repayment of a portion of the First Lien Claims from proceeds of the New Exit Facility and Rights Offering, as well as other cash on hand in excess of the Minimum Cash Balance, the equitization of a portion of the First Lien Claims, the distribution of subscription rights to participate in the Rights Offering and, if applicable, the distribution of replacement term loans under the New Exit Facility to the remaining portion of First Lien Claims, the distribution of replacement term loans under the New Exit Facility to holders of Midwest Notes Claims, cash distributions to holders of Second Lien Claims and Obligor General Unsecured Claims if the classes of such creditors accept the Plan, reinstatement or repayment of Non-Obligor General Unsecured Claims, and the cancellation of existing Interests in Windstream.”

The following is a summary of classes, claims, voting rights, and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

  • Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $0.0 and the estimated recovery is 100%.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $0.0 and the estimated recovery is 100%. 
  • Class 3 (“First Lien Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $3,151.0mn and the estimated recovery is 62.8 – 71.3 %. Each holder of an Allowed First Lien Claim shall receive its Pro Rata share of: (a) 100% of the Reorganized Windstream Equity Interests, subject to dilution on account of the Rights Offering, the Backstop Premium, and the Management Incentive Plan; (b) cash in an amount equal to the sum of (i) the Distributable Exit Facility Proceeds, (ii) the Distributable Flex Proceeds, (iii) the cash proceeds of the Rights Offering, and (iv) all other cash held by the Debtors as of the Effective Date in excess of the Minimum Cash Balance; (c) the Distributable Subscription Rights; and (d) as applicable, the First Lien Replacement Term Loans.
  • Class 4 (“Midwest Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $100.0mn and the estimated recovery is 100%.  Each holder of an Allowed Midwest Notes Claim shall receive its Pro Rata share of the Midwest Notes New Exit Term Facility, the principal amount of which shall be $100.0mn, plus any interest and fees due and owing under the Midwest Notes Indenture and/or the Final DIP Order to the extent unpaid as of the Effective Date.
  • Class 5 (“Second Lien Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,235.0mn and the estimated recovery is 0 – 0.125%. If holders of Allowed Second Lien Claims vote as a class to accept the Plan, on the Effective Date, each holder of an Allowed Second Lien Claim shall receive cash in an amount equal to $0.00125 for each $1.00 of Allowed Second Lien Claims. If holders of Allowed Second Lien Claims vote as a class to reject the Plan, on the Effective Date, each holder of an Allowed Second Lien Claim shall receive treatment consistent with section 1129(a)(7) of the Bankruptcy Code.
  • Class 6A (“Obligor General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,183.0 – $1,203.0mn and the estimated recovery is 0 – 0.125%.  If holders of Allowed Obligor General Unsecured Claims vote as a class to accept the Plan, on the Effective Date, each holder of an Allowed Obligor General Unsecured Claim shall receive cash in an amount equal to $0.00125 for each $1.00 of such Allowed Obligor General Unsecured Claims. If holders of Allowed Obligor General Unsecured Claims vote as a class to reject the Plan, on the Effective Date, each holder of such an Allowed Obligor General Unsecured Claim shall receive treatment consistent with section 1129(a)(7) of the Bankruptcy Code.
  • Class 6B (“Non-Obligor General Unsecured Claims”) is unimpaired, deemed to accept, and not entitled to vote on the Plan. The aggregate amount of claims is $34.0 – $39.0mn and the estimated recovery is 100%.
  • Class 7 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject, and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
  • Class 8 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject, and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.
  • Class 9 (“Interests in Windstream”) is impaired, deemed to reject, and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is N/A.

Voting Results

On June 21st, the Debtors filed their Plan voting results which flagged some concerted opposition, notably in Class 6A (“Obligor General Unsecured Claims”) where the Debtors failed to garner a two-third's level of supportFN. This is no small class, with over $421.0mn of claims voting against; a fact that the Debtors asked the Court to brush aside at the June 24th hearing arguing that the noteholding naysayers, who "have made no substantive contribution to the success of these Chapter 11 Cases" and have "asked for a larger slice of the pie they did not help bake" should be crammed down.

FN: Section 1126(c) of the Bankruptcy Code defines acceptance of a plan by a class of impaired claims as acceptance by holders of at least two-thirds in dollar amount and more than one-half in a number of allowed claims in that class, counting only those claims that have actually voted to accept or to reject the plan.

The Plan voting results [Docket No. 2171] were as follows:

  • Class 3 (“First Lien Claims”) 330 claims holders, representing $2,557,643,685.96 (or 98.92%) in amount and 89.92% in number, accepted the Plan. 37 claims holders, representing $27,963,379.28 (or 1.08%) in amount and 10.08% in number, rejected the Plan.
  • Class 4 (“Midwest Notes Claims”) 68 claims holders, representing $78,717,000.00 (or 99.85%) in amount and 87.18% in number, accepted the Plan. 10 claims holders, representing $115,000.00 (or 0.15%) in amount and 12.82% in number, rejected the Plan.
  • Class 5 (“Second Lien Notes Claims”) 100 claims holders, representing $649,579,000.00 (or 74.12%) in amount and 74.07% in number, accepted the Plan. 35 claims holders, representing $226,786,000.00 (or 25.88%) in amount and 25.93% in number, rejected the Plan.
  • Class 6A (“Obligor General Unsecured Claims”) 626 claims holders, representing $525,505,701.64 (or 55.51%) in amount and 66.17% in number, accepted the Plan. 320 claims holders, representing $421,207,224.61 (or 44.49%) in amount and 33.83% in number, rejected the Plan.

Prepetition Capital Structure

As of the Petition date, Windstream had approximately $5.6bn in aggregate funded-debt obligations. These obligations arose under a revolving credit facility, two tranches under Debtor Windstream Services’ term loan facility, one series of secured first lien notes, two series of secured second lien notes, six series of unsecured notes, and one issuance of secured subsidiary notes. Windstream Holdings and the other Non-Obligor Debtors are not party to Windstream’s prepetition debt obligations. All debt, other than the secured subsidiary notes, has been incurred by Windstream Services and its guarantor subsidiaries (i.e., the Obligor Debtors). The table below summarizes the Debtors' capital structure as of the Petition date:

First Lien Debt Obligations

Principal Amount (in US$ millions)

Term Loan, Tranche B6 – variable rates, due March 29, 2021

1,180.5

Term Loan, Tranche B7 – variable rates, due February 17, 2024

568.4

Revolver – variable rates, due April 24, 2020

802.0

2025 First Lien Notes – 8.625%, due October 31, 2025

600.0

Secured Subsidiary Notes

 

Subsidiary First Lien Notes – 6.75%, due April 1, 20289

100.0

Second Lien Debt Obligations

 

2024 Second Lien Notes – 10.500%, due June 20, 2024

414.9

2025 Second Lien Notes – 9.00%, due June 30, 2025

802.0

Total Secured Debt Obligations

$4,467.8mn

Unsecured Note Issuances (in US$ millions)

 

2020 Senior Notes – 7.750%, due October 15, 2020

78.1

2021 Senior Notes – 7.750%, due October 1, 2021

70.1

2022 Senior Notes – 7.500%, due June 1, 2022

36.2

2023 Senior Notes – 7.500%, due April 1, 2023

34.4

2023 Senior Notes – 6.375%, due August 1, 2023 (“6 3/8% Notes”)10

806.9

2024 Senior Notes – 8.750%, due December 15, 2024

105.8

Total Unsecured Note Obligations

$1,131.5mn

Total Funded-Debt Obligations

$5,599.3mn

Liquidation Analysis (see Exhibit B to Disclosure Statement for notes)

About the Debtors

The Debtors are a leading provider of advanced network communications, technology, broadband, entertainment, security, and core transport solutions to both consumer and business customers across the United States, with a national footprint spanning approximately 150,000 fiber miles. The Debtors also offer broadband, entertainment and security solutions to consumers and small businesses, primarily in rural areas, in 18 states. As of the Petition Date, the Debtors had approximately 11,600 employees. As of the Petition Date, the Debtors had approximately $5.6 billion in aggregate funded-debt obligations under a revolving credit facility, two tranches under Windstream’s term loan facility, one series of secured first lien notes, two series of secured second lien notes, six series of unsecured notes, and one issuance of secured subsidiary notes. All debt, other than the secured subsidiary notes, has been incurred by Debtor Windstream Services and its guarantor subsidiaries.

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