Windstream Sees Normal Operations After Chapter 11 Filing; FCC Vows Vigilance
Windstream expects to continue operating normally after its Chapter 11 filing Monday seeking to restructure debt in U.S. Bankruptcy Court for the Southern District of New York (see 1902250025). The FCC welcomed the assurance but vowed to remain vigilant on potential USF and 911 ramifications. Others suggested more Chapter 11 bankruptcy filings are possible and cited difficult economics for rural-oriented telcos. Some had suggested Windstream could seek Chapter 11 after a federal district court reversal in its dispute with bondholder Aurelius Capital Management (see 1902190043). Moody's Friday downgraded the carrier (see 1902220057) .
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Windstream's said its filing was accompanied by "customary" motions. "These motions will allow the Company to continue to operate in the normal course of business without interruption or disruption to its relationships with its customers, vendors, channel partners and employees," it said. "The Company expects to receive Court approval for these requests and intends to pay vendors in full for all goods received and services provided to Windstream after the filing date." It cited a $1 billion debtor-in-possession financing commitment from Citigroup.
“The promise of the Communications Act and the Commission’s Universal Service Fund is that all Americans deserve a reliable communications network," said Wireline Bureau Chief Kris Monteith. She's "pleased that Windstream has made clear that its reorganization in bankruptcy will not disrupt service to any consumers. Nonetheless, we must be vigilant in light of these events to ensure that the lifesaving 911 service and the voice and broadband connections that Windstream’s customers rely upon remain -- and that the federal funds that Windstream receives through the Connect America Fund and other universal service programs are put to their appropriate use to connect rural and low-income Americans with high-speed broadband.”
Windstream told us it's not aware of FCC regulatory ramifications.
One observer suggested Windstream could be akin to a canary in a coal mine.
"This is not the last Chapter 11 we are going to see this year," tweeted telecom consultant Richard Shockey, reacting to our tweet. “Policymakers should carefully look at the balance sheets on several providers because their debt to equity structure are way out of balance," he told us. "It definitely affects policy in terms of rural broadband investment.” Wireline telcos have been under stress, facing market pressures, with some struggling to survive financially and others adapting better yet challenged (see 1710220002).
"This is a case where several issues -- difficult economics for rural carriers, problematic financial engineering, and a vague relationship between regulation and bankruptcy law -- collided," emailed NewStreet analyst Blair Levin. "Some facts are unique to this deal but the question of how to assure rural areas have a guaranteed provider is one our country will have to grapple with for some time."
“Windstream did not arrive in Chapter 11 due to operational failures and currently does not anticipate the need to restructure material operations,” CEO Tony Thomas said. “We look forward to working through the financial restructuring process to secure a sustainable capital structure so we can maintain our strong operational performance and continue serving our customers for many years to come.” The company and the bondholder Aurelius also traded criticisms Monday.
Windstream Notebook
A Freedom of Information Act complaint against the FCC seeks relief in U.S. District Court in Washington, related to ABS Telecom that at one time was a Windstream sales agent. The complaint seeks "release of a document improperly withheld from Plaintiff" by the FCC and a declaration that Universal Service Administrative Co. "is not a government agency subject to FOIA," said the filing Monday by Russell Lukas. It said Lukas LaFuria represented ABS, which in 2011 agreed to be a sales agent for Windstream, a participant in the USF rural healthcare telecom program, while ABS and its managing partner consulted for rural healthcare providers in Texas. Windstream terminated the agreement in 2016, "claiming" a conflict of interest that violated the program's competitive bidding rule, the complaint said. Lukas eventually filed an FCC FOIA request related to a USAC staff decision that denied three Texas rural healthcare providers' request for more than $14.6 million in RHC funding and alleged their selection of Windstream as service provider "was not the result of a 'fair and open competitive bidding process.'" After a Wireline Bureau decision withheld certain documents, Lukas said he filed an appeal that remains pending 643 days after the initial FOIA request. The FCC and Windstream didn't immediately comment.