Windstream says noteholder's notice of default over Uniti asset transfer is without merit

Windstream is refuting claims made by a noteholder that the service provider’s transfer of its network holdings to Uniti did not comply with a sale and leaseback covenant, with a further violation of a restricted payment covenant.

In an 8K SEC filing, Windstream said that “no default occurred, and that no default is continuing, under the Sale and Leaseback covenant under the Indenture.”

Further, the noteholder’s notice accused Windstream of violating the restricted payment covenant under the Indenture by not delivering an officers’ certificate as required. It also alleged the company made a restricted payment in reliance on the restricted payment builder basket during the pendency of an alleged default, which is prohibited by the Indenture.

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Winstream countered that the company delivered the requisite officers’ certificate and was not in default when it made any restricted payments.

“The allegations in the Notice are without merit, and the company believes those allegations are intended to manipulate the prices of the Notes and other securities,” Windstream said.

The filing noted that if the alleged default is not cured 60 days after the notice was received, the noteholder could allege an Event of Default has occurred.

Windstream said that “the matter has no impact on the company’s ability to serve its customers or conduct its business.”

Morgan Stanley said in a research note that these accusations could have a near-term share impact as the companies present their sides of the story.

“We would note that the debt and equity of both Windstream and Uniti have been under pressure for several weeks, notably since Windstream decided to eliminate its dividend with 2Q17 earnings,” Morgan Stanley said. “This action may create a short term overhang for both stocks as the parties argue their positions.”