Internet Services Provider (ISP) and television subscription firm Windstream has voluntarily filed a bankruptcy petition after losing a costly court battle with a hedge fund.
On Monday, the US firm -- which caters for over a million customers across rural areas in 18 states -- said a recent court ruling which went in the favor of Aurelius Capital Management has prompted the business decision.
The court case in question, brought against Windstream by the New York-based hedge fund and the US Bank National Association, centered on Windstream's spinoff of Uniti Group in 2015.
As reported by Bloomberg, there were no objections until 2017, in which Aurelius claimed that the spinoff of the firm's fiber optic cabling unit deprived shareholders of assets critical to their investments.
Judge Jesse Furman, the judge of the United States District Court for the Southern District of New York, ruled in Aurelius' favor on 15 February 2019 in a $310 million settlement, plus interest.
Furman said the spinoff violated its agreement with bondholders. This had a knock-on effect with creditors who were then able to demand roughly $5.8 billion in the immediate repayment of loans and bonds.
Tony Thomas, president and chief executive officer of Windstream says that Windstream disagrees with the ruling and deems Aurelius's case as "predatory market manipulation" designed to boost the hedge fund's own financial position.
Windstream has now petitioned for reorganization under Chapter 11 in US Bankruptcy, and says that the firm intends to use the court-supervised order to "address debt maturities that have been accelerated as a result of the recent decision."
"Taking this proactive step will ensure that Windstream has access to the capital and resources we need to continue building on Windstream's strong operational momentum while we engage in constructive discussions with our creditors regarding the terms of a consensual plan of reorganization," said Thomas. "We acted decisively to secure the long-term financial stability of Windstream, and we are confident that, upon completion of the reorganization process, we will be even better positioned to invest in our business, expand our speed and capabilities for our customers and compete for the long term."
Windstream customers may not need to panic yet, however, as the motion will give the ISP time to try and absolve the financial chaos the ruling has likely caused. Citigroup Global Markets has committed to $1 billion in debtor-in-possession (DIP) financing, and together with daily revenues, Windstream hopes that everything will be business as usual -- at least, for now.
Windstream has made a number of requests to the court, of which the details are not known, in the hope of keeping these operations going without disrupting customer services or the relationship between the company, vendors, partners, and employees -- including maintaining payments and salaries.
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Over $10 billion has been listed in assets and liabilities, according to the bankruptcy filing.
"While it is unfortunate that Aurelius engaged in these tactics to advance its returns at the expense of Windstream, 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," Windstream's CEO added.