Windstream Releases Cleansing Materials

12 Nov Windstream Releases Cleansing Materials

LITTLE ROCK, Ark.–(BUSINESS WIRE)–Windstream Holdings, Inc. (the “Company”) today is disclosing certain cleansing materials pursuant to confidentiality agreements (the “Confidentiality Agreements”) entered into among the Company, Uniti Group, Inc. (“Uniti”), and certain holders of the Company’s debt obligations (collectively, the “NDA Parties”) for the purpose of sharing confidential information as part of a mediation process in connection with the Company’s and all of its subsidiaries’ voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Mediation”). The parties have reached an impasse with respect to the issues and claims subject to the Mediation, and the mediator has therefore suspended the Mediation indefinitely.

Pursuant to the Confidentiality Agreements, the Company agreed to publicly disclose certain information provided to the NDA Parties (the “Cleansing Materials”). Copies of the Cleansing Materials, including (i) the joint proposal of the Company and the ad hoc group of second lien noteholders dated October 29, 2019, (ii) the proposal of Uniti dated October 18, 2019, and (iii) certain additional Cleansing Materials presented in connection with the Mediation, are available free of charge by visiting the website of Kurtzman Carson Consultants LLC at http://www.kccllc.net/windstream and are also attached to this release. The description of the Cleansing Materials does not purport to be complete and is qualified in its entirety by the complete text of the attached Cleansing Materials.

The information in the Cleansing Materials includes certain projections and forecasts of the Company that is dependent upon assumptions and statements set forth in the Cleansing Materials. Any financial projections or forecasts in the Cleansing Materials were not prepared with a view toward public disclosure or compliance with the published guidelines of the Securities and Exchange Commission (the “SEC”) or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. The Company’s independent accountants have not examined, or otherwise applied procedures to any projections or forecasts and, accordingly, do not express an opinion or any other form of assurance with respect to any projections or forecasts. The inclusion of the projections or forecasts should not be regarded as an indication that the Company considers the projections to be a reliable prediction of future events, and any projections or forecasts should not be relied upon as such. The Company does not undertake any obligation to publicly update the information contained in the Cleansing Materials to reflect circumstances existing after the date of this release or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the information are shown to be in error.

About Windstream

Windstream Holdings, Inc., a FORTUNE 500 company, is a leading provider of advanced network communications and technology solutions. Windstream provides data networking, core transport, security, unified communications and managed services to mid-market, enterprise and wholesale customers across the U.S. The company also offers broadband, entertainment and security services for consumers and small and medium-sized businesses primarily in rural areas in 18 states. Services are delivered over multiple network platforms including a nationwide IP network, our proprietary cloud core architecture and on a local and long-haul fiber network spanning approximately 150,000 miles. Additional information is available at windstream.com or windstreamenterprise.com. Please visit our newsroom at news.windstream.com or follow us on Twitter at @Windstream.

Cautionary Statement Regarding Forward Looking Statements

This release and the Cleansing Materials may contain “forward looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward looking statements. These statements are based on certain assumptions based on management’s views, estimates, projections, and beliefs as of the time the statements are made, regarding future events and results.. When used in this release and the Cleansing Materials, words such as “will,” “potential,” “believe,” “estimate,” “intend,” “expect,” “may,” “should,” “anticipate,” “could,” “plan,” “predict,” “forecast,” “project,” “profile,” “model,” “strategy,” “future” or their negatives or statements that include these words or other words that convey the uncertainty of future events or outcomes, are intended to identify forward looking statements, although not all forward looking statements contain such identifying words. Forward looking statements involve a number of uncertainties and are subject to many risks and variables that could impact our future performance. Actual future events and our results may differ materially from those expressed in these forward-looking statements as a result of a number of important factors, many of which are beyond our control, including risk factors described in our Annual Report on Form 10-K and First Quarterly Report on Form 10-Q filed in 2019 available at the SEC’s website at www.sec.gov. Although we believe that the expectations reflected in our forward looking statements are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that any of these expectations will be achieved (partially or in full) or will prove to have been correct. In light of these risks, uncertainties and assumptions, the events anticipated by our forward-looking statements may not occur, and, if any of such events do, we may not have correctly anticipated timing or the extent of their impact on our actual results. Accordingly, you should not place any undue reliance on any of our forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Windstream and Second Lien Ad Hoc Group Proposal

Summary of Settlement Terms

Effective Date

January 1, 2020

Cash Consideration

$525mm

UNIT Common Equity Consideration

Shares equal to 19.99% of Uniti’s current shares outstanding

Fiber TCI Commitment by Uniti

Uniti will fund up to an aggregate of $1,750mm of fiber and fixed wireless tower tenant capital improvements (“TCI”) through April 2030 based on the following commitment schedule

Year 1: $175mm; years 2-4: $225mm / year; years 5-10: $150mm / year

Any unspent annual TCI commitments will be rolled over into a subsequent year and any unspent TCI commitments through April 2030 will be rolled over into the subsequent renewal period

Windstream will pay to Uniti a 1.5% cap rate per year on the average annual cumulative balance of TCIs funded by Uniti1

All investments in fiber assets, including tower investments2 used to deploy fixed wireless, shall be eligible for fiber TCI funding

Summary of Asset Purchase Terms

Cash Consideration

$175mm

Contracts Sold to UNIT

Uniti acquires the following:

$21mm of dark fiber IRU EBITDA exclusively on Uniti owned/Windstream leased assets; and

Access rights to 1.6mm Uniti-owned Windstream-leased fiber strand miles

Consists of 1.3m unutilized fiber strand miles and 0.3m fiber strand miles associated with transferred CLEC dark fiber IRU contracts

Uniti will pay Windstream $250 annually per fiber route mile utilized by Uniti, in accordance with normal “Operating & Maintenance” relationships

Windstream retains 12 fiber strands beyond what Windstream is utilizing today

MLA Structure

Current MLA to be bifurcated into structurally similar but independent agreements governing the ILEC Facilities and the CLEC Facilities (the “ILEC Arrangement” and the “CLEC Arrangement”, respectively)

Certain CLEC copper assets shall be included in the ILEC Arrangement

CLEC Arrangement Structure

Windstream Maintenance Fee: As noted above, Uniti will pay Windstream $250 annually per fiber route mile utilized by Uniti, in accordance with normal “Operating & Maintenance” relationships

Windstream Permitted Operations: Windstream shall be permitted to operate in the same manner as it is currently operating concerning utilization of any CLEC fibers

Uniti Permitted Operations: Uniti shall be permitted to promote and sell dark fiber solutions so long as such promotion or sale does not occur within a Windstream incumbent local exchange territory

ILEC Competing Business

Competition restrictions on Landlord within Windstream’s ILEC territories and / or adjoining territories remain

Language shall be modified to permit the sale of properties and IRU terms in ILEC territories subject to the satisfaction of conditions to be outlined in the ILEC Arrangement

Parties

Windstream Services and its subsidiaries shall be added as tenants / guarantors

Covenants

No financial or operational covenants except as outlined herein

Uniti Transfer / Securitization Rights

The MLA shall be amended to remove all restrictions on Uniti’s transfer rights and other ability to monetize or encumber the MLA, except that Uniti shall not be permitted to transfer its interest to a Windstream Competitor3

Right of First Refusal

on WIN Construction of

Towers / Small Cells /

Fiber Builds

None

General

Thresholds and other relevant provisions of the MLA shall be conformed to the bifurcation of the MLA into the ILEC and CLEC Arrangements and other foregoing terms

All terms of modified MLA must satisfy “true lease” analysis, including residual value / economic useful life requirements at end of relevant lease term, fair market value rent for renewal terms, etc.

Conditions Precedent

The parties agree to mutual releases from any and all liability related to all legal claims and causes of action

The parties agree that Uniti has no consent rights over Windstream’s business plan, including Windstream’s network deployment strategies

1 Such rate shall not be subject to any escalator.

2 Exclusive of investments in electronics used to transmit or receive wireless signals.

3 As defined under the current MLA, section 2.1, at page 7.

Uniti Proposal1

Effective Date

January 1, 2020

Fiber Investment Commitment by UNITI

Aggregate Amount: $1,750mm through April 2030

Annual TCI Schedule:

Years 1 – 10: $175mm / year

Cap Rate: 8.0%

WIN Matching: None

TCI Basket: No exclusions of any funded TCI commitments from lease payment calculation upon renewal in 2030

Rent Escalator

Rent escalator remains in place

Upfront Consideration

Cash: $100mm

Uniti Stock: None

Exclusion of UOWL CLEC Fiber Rent

Exclusion of Uniti-owned, Windstream-leased (“UOWL”) CLEC Fiber Rent: 2030 renewal rent will exclude the 1.3m fiber strands and the 0.3m fiber strands associated with UOWL CLEC dark fiber contracts

Asset Purchase
Terms

Cash Consideration: $150mm

Contracts Sold to UNIT:

$21mm of dark fiber IRU EBITDA exclusively on Uniti owned/Windstream leased assets transferred to Uniti

Windstream relinquishes its rights to access 1.3mm UOWL unlit fiber strands and the 0.3mm fiber strands associated with UOWL CLEC dark fiber contracts

1 These terms were not endorsed by Uniti; hypothetical proposed terms prepared for discussion.

Additional Cleansing Materials

Significant 1GB Expansion Opportunities within Kinetic Markets

Expansion Opportunities Target Most Economical Markets

Incremental HH passed

Method

Build

Priority

Capital per HH passed

 

(Includes both enablement and success-based capital.)

Fixed Wireless Focused Plan

Aerial Fiber to the Premise Focused Plan

Aerial Fiber to the Premise

 On-Going

 $520

 0.3M

 1.1M

 (60% Penetration of Opportunity)

Fixed Wireless

 2021 & Beyond

 $660

 1.9M

 1.1M

Buried Fiber to the Premise

 Not Included in Plan Today

$1,050+

 Not In Plan Today

 

 (Buried FttP opportunity to be diligenced in final plan.)

 Not In Plan Today

 

 (Buried FttP opportunity to be diligenced in final plan.)

 

Spectrum Auction Update

28 Ghz – 1.0M HHs

24 Ghz – 1.4M HHs

Total  – 2.4M HHs

 

Cost ~ $11/HH

Coverage ~ 52% of HHs

1GB Coverage Areas

Broadband
HH’s

% Aerial
FttP
Opportunity

% MM
Wave
Opportunity

Total 1GB
Opportunity

AL

38,725

49%

1%

50%

AR

104,724

32%

50%

82%

FL

106,009

7%

0%

7%

GA

686,223

38%

42%

80%

IA

218,965

29%

28%

57%

KY

612,812

71%

17%

88%

MN

22,982

1%

59%

60%

MO

60,678

23%

37%

60%

MS

13,738

4%

0%

4%

NC

408,833

30%

39%

69%

NE

242,957

41%

57%

98%

NM

97,614

53%

30%

83%

NY

100,020

77%

9%

86%

OH

269,574

58%

6%

64%

OK

164,153

31%

0%

31%

PA

351,188

73%

6%

79%

SC

73,949

14%

6%

20%

TX

441,884

39%

32%

71%

Total

4,015,028

46%

27%

73%

                                                  

 * Currently 73% of WIN Households can be served by combination of Aerial FttP or current Fixed Wireless spectrum in buried plant markets. Current business plan targets 60% coverage utilizing these deployment methods.

Tenant Capital Improvements

(Dollars in Millions)

Fiscal Year Ending 12/31,

 

 

 

 

2020

 

2021

 

2022

 

2023

 

2024

 

2025

 

2026

 

2027

 

2028

 

2029

 

2030

Fixed Wireless Focused Plan

 

 

Total Fiber

$ 64

 

$ 70

 

$ 47

 

$ 44

 

$ 40

 

$ 36

 

$ 34

 

$ 32

 

$ 30

 

$ 29

 

$ 28

Copper

33

 

23

 

16

 

11

 

8

 

6

 

4

 

3

 

2

 

1

 

1

Other (Buildings, Poles, Conduit)

9

 

8

 

7

 

6

 

6

 

5

 

5

 

4

 

4

 

3

 

3

Total TCIs

$ 105

 

$ 101

 

$ 70

 

$ 61

 

$ 53

 

$ 47

 

$ 43

 

$ 39

 

$ 36

 

$ 34

 

$ 31

Fiber To The Prem Focused Plan

 

 

 

 

 

 

 

 

 

 

 

Fiber

$ 176

 

$ 200

 

$ 186

 

$ 143

 

$ 106

 

$ 93

 

$ 83

 

$ 77

 

$ 70

 

$ 70

 

$ 70

Copper

33

 

23

 

16

 

11

 

8

 

6

 

4

 

3

 

2

 

1

 

1

Other (Buildings, Poles, Conduit)

9

 

8

 

7

 

6

 

6

 

5

 

5

 

4

 

4

 

3

 

3

Total TCIs

$ 217

 

$ 230

 

$ 209

 

$ 160

 

$ 120

 

$ 104

 

$ 91

 

$ 84

 

$ 76

 

$ 75

 

$ 74

* Upon additional due diligence, Windstream identified incremental TCIs within its capex budget that would support Uniti’s funding commitment of $1,750mm of fiber and fixed wireless tower TCIs through April 2030.
Contacts
Media Contact:
David Avery, 501-748-5876
[email protected]

Investor Contact:
Chris King, 704-319-1025
[email protected]