Item 7.01 Regulation FD Disclosure
On February 5, 2020, Uniti Group Inc. (the "Company," Uniti," "we," "us," or
"our") provided the following information in an offering memorandum related to
the offering of $1.75 billion aggregate principal amount of senior secured notes
due 2025 (the "New Secured Notes") described below.
Windstream Developments
Windstream Holdings, Inc. ("Windstream Holdings" and, together with its
subsidiaries, "Windstream") is the lessee of certain telecommunications network
assets, including fiber and copper networks and other real estate, pursuant to a
long-term exclusive triple-net lease with us (the "Master Lease") and,
therefore, is presently the source of a substantial portion of our revenues. In
recent years, Windstream has experienced annual declines in its total revenue,
sales and cash flow, and has had its credit ratings downgraded by nationally
recognized credit rating agencies multiple times.
Prior to its bankruptcy filing described below, Windstream was involved in
litigation with an entity who acquired certain Windstream debt securities and
thereafter issued a notice of default as to such securities relating to the
Spin-Off. Windstream challenged the matter in federal court and a trial was held
in July 2018. On February 15, 2019, the federal court judge issued a ruling
against Windstream, finding that its attempts to waive such default were not
valid; that an "event of default" occurred with respect to such debt securities;
and that the holder's acceleration of such debt in December 2017 was effective.
In response to the adverse outcome, on February 25, 2019, Windstream filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the
U.S. Bankruptcy Court for the Southern District of New York and is currently
operating as a "debtor in possession" under supervision of the Bankruptcy Court.
During the first half of 2019, Windstream's CEO stated that it was evaluating
all options as part of the Chapter 11 reorganization process regarding the
Master Lease, including renegotiation, recharacterization and rejection of the
Master Lease. As further described below, on July 25, 2019, in connection with
Windstream's bankruptcy, Windstream Holdings and Windstream Services, LLC
("Windstream Services") filed a complaint with the U.S. Bankruptcy Court for the
Southern District of New York in an adversary proceeding against Uniti and
certain of its affiliates, alleging, among other things, that the Master Lease
should be recharacterized as a financing arrangement, that certain rent payments
and tenant capital improvements made by Windstream under the Master Lease
constitute constructive fraudulent transfers, that the Master Lease is a lease
of personal property and that Uniti breached certain of its obligations under
the Master Lease. As further described below, an adverse determination in the
adversary proceeding with Windstream could materially adversely affect our
results of operations, liquidity and financial condition (including our ability
to satisfy our obligations under the New Secured Notes and our existing secured
and unsecured notes) and our status as a REIT.
Rejection. In bankruptcy, Windstream has the option to assume or reject the
Master Lease. Because the Master Lease is a single indivisible Master Lease with
a single rent payment, it must be assumed or rejected in whole and cannot be
sub-divided by facility or market. A significant amount of Windstream's revenue
is generated from the use of our network included in the Master Lease, and we
believe that the Master Lease is essential to Windstream's operations.
Furthermore, Windstream is designated as a "carrier of last resort" in certain
markets where it utilizes the Master Lease to provide service to its customers,
and we believe Windstream would require approval from the applicable Public
Utility Commission and the Federal Communications Commission to cease providing
service in those markets. As a result, although we can provide no assurances, we
believe the probability of Windstream rejecting the Master Lease in bankruptcy
to be remote. A rejection of the Master Lease, or even a temporary disruption in
payments to us, would require us to fund certain expenses and obligations (e.g.,
real estate taxes, insurance and maintenance expenses) to preserve the value of
our properties and avoid the imposition of liens on our properties and could
impact our ability to fund other cash obligations, including dividends necessary
to maintain REIT status, non-essential capital expenditures and our debt service
obligations and could otherwise affect our ability to maintain REIT status.
In connection with the mediation (discussed below under "-Mediation"), Uniti
agreed to an extension of the assumption deadline for the Master Lease to
December 7, 2019, and subsequently agreed to extend such deadline to the date
that is ninety calendar days following entry by the Bankruptcy Court of an order
resolving Windstream's recharacterization claim. See "-Recharacterization /
Pending Master Lease Litigation" below. In exchange, Windstream provided certain
assurances regarding the continued payment of rent pursuant to the Master Lease
during this extension period and, following the expiration of the extension
period, Windstream has undertaken that it will continue to make payments under
the Master Lease as they come due, unless and until Windstream obtains an order
from the Bankruptcy Court permitting cessation of such payments.
A rejection of the Master Lease by Windstream could result in an "event of
default" under our credit agreement if we are unable to enter into a replacement
lease that satisfies certain criteria set forth in the credit agreement within
ninety (90) calendar days and we do not maintain pro forma compliance with a
consolidated secured leverage ratio, as defined in the credit agreement, of 5.00
to 1.00. An acceleration of debt under our senior secured credit facilities due
to an uncured "event of default" under our credit agreement would also result in
an "event of default" under the terms of the New Secured Notes and our existing
secured and unsecured notes. Such an "event of default" would give the holders
of the applicable debt obligation the right to accelerate our repayment
obligations relating to such debt.
Our credit agreement prohibits us from amending the Master Lease in a manner
that, among other provisions, pro forma for any such amendment, would result in
our consolidated secured leverage ratio exceeding 5.00 to 1.00, and management
has no intention to enter into a lease amendment that would violate our debt
covenants. However, it is difficult to predict what could occur in Windstream's
bankruptcy restructuring, including as a result of the adversary proceeding
brought by Windstream related to the Master Lease.
Mediation. Uniti, Windstream and Windstream's creditors have been engaged in
mediation in the Windstream bankruptcy to resolve claims brought by Windstream
against Uniti. These discussions have involved various proposals by us and
Windstream to resolve all claims.
On November 12, 2019, Windstream issued a press release that disclosed the terms
of our most recent proposal and its most recent proposal. Our proposal at such
time included (i) funding $1.75 billion of growth capital investments ("Growth
TCI") in the leased property, which would lead to increased rent at a rate of 8%
of the amount of the investment in the first year following the investment and
thereafter increasing each year to an amount equal to 100.5% of the prior year's
amount and (ii) the payment by us of $250 million in cash up front, including to
acquire certain assets. Windstream's proposal sought $700 million in cash,
including to acquire certain assets, and 19.9% of our outstanding common stock
in addition to the Growth TCI. Since then, we have modified our proposal to
include the Growth TCI, $400 million in cash, payable either in whole upon
Windstream's emergence from bankruptcy or over five years, with interest. Our
proposal also contemplates splitting the lease into two leases (for ILECs and
CLECs), with the aggregate rent unchanged during the initial term compared to
current rent, adding Windstream Services and other subsidiaries as parties to
the lease, and including certain financial covenants applicable to Windstream.
In addition, we would sell 19.99% of our outstanding common stock to certain
investors and use the proceeds to fund an additional cash payment to Windstream.
The proposals we have exchanged with Windstream to date are not binding and we
cannot provide any assurance as to Windstream's ability or willingness to
perform its obligations under the existing or any renegotiated Master Lease if
we do reach a negotiated resolution.
We are committed to seeking a successful resolution that would involve release
of all claims against us and continuation of the lease. Discussions among the
parties to the mediation continue but, to date, no agreement has been reached,
and we cannot predict if or when an agreement will be reached or what its impact
or terms would be. Although we believe that a successful renegotiation of the
Master Lease is in the interests of all parties, any such resolution could
result in transfers of value to Windstream that could adversely affect our
consolidated results of operations, liquidity, and financial condition.
Recharacterization / Pending Master Lease Litigation. On July 25, 2019, in
connection with Windstream's bankruptcy, Windstream Holdings and Windstream
Services filed a complaint with the U.S. Bankruptcy Court for the Southern
District of New York against Uniti and certain of its affiliates, alleging¸
. . .
Item 8.01 Other Events
Secured Notes Offering
On February 5, 2020, the Company issued a press release announcing the offering
of the New Secured Notes by its subsidiaries, Uniti Group LP, Uniti Fiber
Holdings Inc., Uniti Group Finance 2019 Inc. and CSL Capital, LLC (the
"Issuers"). The New Secured Notes will be guaranteed on a senior unsecured basis
by the Company and on a senior secured basis by each of the Company's
subsidiaries (other than the Issuers) that guarantees indebtedness under the
Company's senior secured credit facilities (the "Subsidiary Guarantors"). The
New Secured Notes and the subsidiary guarantees will be secured by
first-priority liens on substantially all of the assets of the Issuers and the
Subsidiary Guarantors (subject to certain exceptions), which liens will also
ratably secure the Company's existing secured notes and its senior secured
credit facilities.
The Issuers intend to use the net proceeds from the offering to repay $1.65
billion of outstanding borrowings under the Company's term loan facility and
$56.7 million of outstanding borrowings under the Company's revolving credit
facility (and will terminate related revolving commitments in an amount equal to
$57.6 million). In connection with the offering, and as described above, the
Company is seeking consents to the amendment from the lenders under its senior
secured credit facilities. The amendment will waive any potential default that
would arise if the Company's financial statements for 2019 include a "going
concern" statement. As of the date hereof, the Company has consents from lenders
that will constitute the required majority of lenders (after giving effect to
the repayment and termination described above) to make the amendment effective.
The New Secured Notes will not be registered under the Securities Act of 1933,
as amended (the "Securities Act"), or any state securities laws, and may not be
offered or sold in the United States absent registration or an applicable
exemption from registration under the Securities Act or any applicable state
securities laws. The New Secured Notes will be offered only to persons
reasonably believed to be qualified institutional buyers under Rule 144A under
the Securities Act and outside the United States in compliance with Regulation S
under the Securities Act. A copy of the press release is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
Certain statements in this Current Report on Form 8-K may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, as amended from time to time. Those
forward-looking statements include all statements that are not historical
statements of fact including those regarding the proposed offering of the notes.
Words such as "anticipate(s)," "expect(s)," "intend(s)," "estimate(s),"
"foresee(s)," "plan(s)," "believe(s)," "may," "will," "would," "could,"
"should," "seek(s)" and similar expressions, or the negative of these terms, are
intended to identify such forward-looking statements. These statements are based
on management's current expectations and beliefs and are subject to a number of
risks and uncertainties that could lead to actual results differing materially
from those projected, forecasted or expected. Although we believe that the
assumptions underlying the forward-looking statements are reasonable, we can
give no assurance that our expectations will be attained. Factors which could
have a material adverse effect on our operations and future prospects or which
could cause actual results to differ materially from our expectations include,
but are not limited to, the future prospects of our largest customer, Windstream
Holdings, which, following a finding that it is in default of certain of its
debt, on February 25, 2019, and along with all of its subsidiaries, filed
voluntary petitions for relief under Chapter 11 of the Bankruptcy Code; our
ability to continue as a going concern if Windstream Holdings were to succeed in
its recharacterization and fraudulent transfer claims against us, reject the
master lease or be unable or unwilling to perform its obligations under the
master lease, including its obligations to make monthly rent payments; the
ability and willingness of our customers to meet and/or perform their
obligations under any contractual arrangements entered into with us, including
master lease arrangements; the ability of our customers to comply with laws,
rules and regulations in the operation of the assets we lease to them; the
ability and willingness of our customers to renew their leases with us upon
their expiration, and the ability to reposition our properties on the same or
better terms in the event of nonrenewal or in the event we replace an existing
tenant; the adverse impact of litigation affecting us or our customers; our
ability to renew, extend or retain our contracts or to obtain new contracts with
significant customers (including customers of the businesses that we acquire);
the availability of and our ability to identify suitable acquisition
opportunities and our ability to acquire and lease the respective properties on
favorable terms; the risk that we fail to fully realize the potential benefits
of acquisitions or have difficulty integrating acquired companies; our ability
to generate sufficient cash flows to service our outstanding indebtedness; our
ability to access debt and equity capital markets; adverse impacts of changes to
our business, economic trends or key assumptions regarding our estimates of fair
value, including potential impacts of recent developments surrounding Windstream
Holdings that could result in an impairment charge in the future, which could
have a significant impact to our reported earnings; our ability to retain our
key management personnel; the impact on our business or the business of our
customers as a result of credit rating downgrades and fluctuating interest
rates; adverse impacts of litigation or disputes involving us or our customers;
our ability to retain our key management personnel; our ability to qualify or
maintain our status as a real estate investment trust ("REIT"), including as a
result of the effects of the recent event with respect to our largest customer,
Windstream Holdings; changes in the U.S. tax law and other state, federal or
local laws, whether or not specific to REITs, including the impact of the 2017
U.S. tax reform legislation; covenants in our debt agreements that may limit our
operational flexibility; the possibility that we may experience equipment
failures, natural disasters, cyber attacks or terrorist attacks for which our
insurance may not provide adequate coverage; other risks inherent in the
communications industry and in the ownership of communications distribution
systems, including potential liability relating to environmental matters and
illiquidity of real estate investments; and additional factors described in our
reports filed with the SEC.
Uniti expressly disclaims any obligation to release publicly any updates or
revisions to any of the forward-looking statements set forth in this Current
Report on Form 8-K to reflect any change in its expectations or any change in
events, conditions or circumstances on which any statement is based.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit
Number Description
99.1 Press Release issued February 5, 2020
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).
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UNITI GROUP INC. 
