1

The Windstream Bankruptcy: The Future for CWA-represented

Employees

CWA Telecommunications

and Technologies

March 2019

Windstream Growth Debt Driven

High level of debt (measured by debt/EBITDA).

– Windstream = x5.5 in 2017

– AT&T = x3.6 (after Time Warner purchase)

– Verizon = x2.6

– Frontier = x5.0

– CenturyLink = x6.2

Debt-driven growth squeezes all aspects of the

company.

2

Financial Engineering and the Creation of CS&L

2014-2015: Windstream reorganized into two companies –

Windstream Services and Communications, Sales & Leasing

(now Uniti Fiber)

Goals was to lower tax rate for shareholders b/c CS&L

organized as a real estate investment trust (REIT) – profits at

CS&L pass through to shareholders and are not taxed at

company level

CWA opposed the transaction for multiple reasons

– REIT plant and equipment outside regulatory arena

– REIT organization led to concerns about safety of our members

– Financial concerns: uncertain effect on cash flow

3

Aurelius Capital Management

“Vulture fund” that buys distressed debt and demands full

payment at redemption

– Argentina

– Puerto Rico

Saw an opportunity at Windstream in the 2013 Indenture

(6.375% notes)

– Debt covenant prevented sale/leasebacks AND CS&L was leasing

back the assets to WIN

– Later argument: debt exchange impermissible b/c higher debt

September 22, 2017: notice of default

December 7, 2017: notice of acceleration – principal + interest

4

Windstream Counter Arguments

WIN argued Aurelius a “rogue noteholder”

– Had purchased Credit Default Swaps in hope of

default

– Other bondholders agreed to exchange debt

WIN also argue that Services – the note

issuer – not a party to the lease with CS&L

5

Creditor v. Creditor

Debt swap of 2013 notes

– Elliott Management, Blue Mountain Capital, JP Morgan Asset

Management

– Majority of noteholders (61%) agreed to extend from 2023 to 2025

Debt swap of notes due 2020

– Citadel, Elliott Management, Western Asset Management, Loomis

Sayles

– Junior debt transformed into senior debt

– Paying 10.5% vs 7.75%

6

February 15 Decision

Judge Jesse Furman agreed with Aurelius

– The legal fiction of Windstream Services not a

party to the lease was “too cute by half”

– The REIT and leasing of plant & equipment

violated debt covenant

– The debt exchanges in 2018 violated debt

covenant

Aurelius awarded $310 million

Windstream promised an appeal

7

February 25 Bankruptcy

Voluntary Chapter 11 reorganization – “Windstream did not arrive in chapter 11 due to operation failures

and, currently, does not anticipate the need to restructure material

operational obligations. Instead … Windstream hopes and

anticipates that its operations will continue uninterrupted and its

employees will be able to continue to focus on providing best-in-

class service to all of Windstream’s valued customers…. The

primary aim of these chapter 11 cases is to serve as a foundation

for a financial restructuring necessitated by an adverse ruling in

the United States District Court for the Southern District of New

York by Judge Jesse Furman, which found a default under an

indenture governing certain of Windstream’s unsecured notes….

Windstream hopes to protect its business as a going concern,

ensure long-term financial stability, and secure a sustainable go-

forward capital structure.” [Declaration of Tony Thomas. p. 3] 8

Windstream Reasoning for Reorganization

Appeal would require that Company post a

bond of $310 million

Court decision triggered default on other

Windstream debt

– Holders of a majority of senior notes and the

revolver needed to waive a default

– Uncertainty whether Windstream liable for more

than just Aurelius judgement – potentially up to

$1.5 billion

9

CWA Actions

T&T followed court case from the beginning

– Team of Lisa Bolton / Ken Saether / Tom Smith /

Pat Shea / Tony Daley

Statement to CWA locals after February 15

Engagement of outside bankruptcy attorneys

Outreach to CWA locals

Assembling of claims

Petition to sit on unsecured creditors’

committee

10

Key Filings to Date

2/25: DIP Motion Introduced

– $1 billion commitment from JP Morgan Chase

– 2/28: Court granted access of first $400 million

2/25: Declaration of Tony Thomas

2/28: Interim Order Authorizing Debtors to

Pay Pre-Petition Employee Wages, Salaries,

Other Compensation, and Reimbursable

Employees Expenses and to Continue

Employee Benefits Program 11

Cohen Weiss & Simon

12

Bankruptcy Docket

http://www.kccllc.net/windstream/

13

http://www.kccllc.net/windstream/

APPENDIX

14

Financial Metrics – 2010-17

15

$ mi l l ion 2010 2011 2012 2013 2014 2015 2016 2017 2010-17

Revenue $3,710.7 $4,279.6 $6,139.5 $5,988.1 $5,829.5 $5,765.3 $5,387.0 $5,852.9 $37,099.7

EBITDA $1,812.2 $1,881.5 $2,274.1 $2,389.3 $1,969.8 $1,991.6 $1,813.0 $1,928.1 $14,131.5

Net income $312.7 $169.5 $168.0 $241.0 -$39.5 $27.4 -$383.5 -$2,116.6 $495.6

Total Debt $7,437.1 $9,269.6 $9,086.0 $8,779.0 $8,722.2 $10,375.3 $9,899.5 $10,694.1

Debt/EBITDA 4.1 4.9 4.0 3.7 4.4 5.2 5.5 5.5

Dividends $464.6 $509.6 $588.0 $593.6 $602.2 $369.2 $58.6 $64.4 $3,250.2

Stock Buybacks $0.0 $0.0 $0.0 $0.0 $0.0 $46.2 $28.9 $19.0 $94.1

Sourcxe: Capita l IQ

Windstream Communications

Financial Information 2010-2017

Dividends + Buybacks as

Percentage Net Income 148.58% 300.65% 350.00% 246.31% n/a 1516.06% n/a 674.80%n/a

Financial Metrics - 2018

16

$ mi l l ion 1Q2018 2Q2018 3Q2018 1-3Q2018

Revenue $1,454.3 $1,444.4 $1,420.6 $4,319.3

EBITDA $147.0 $163.2 $148.8 $459.0

Net income -$121.4 -$93.7 $41.3 -$173.8

Tota l Debt $10,743.2 $10,631.7 $10,435.3

Debt/EBITDA (annual ized) 18.3 16.3 17.5

Dividends $0.0 $0.0 $0.0 $0.0

Stock Buybacks $0.0 $0.0 $0.0 $0.0

Source: Capita l IQ

Dividends + Buybacks as

Percentage Net Income 0.00% 0.00% 0.00% 0.00%

Windstream Communications

Financial Information 2018

CEO Pay

17

A B C D E F G H I

Salary All other

Value

Realized

on Time-

Vested

Stock

Non-equity

Incentive Plan

Compensation

Value

Realized

On

Exercise

of Options

Value Realized

on

Performance-

Vested Stock

2017 A. Thomas $3,960,643 $1,000,000 $85,659 $839,652 $1,195,680 $0 $839,652

2016 A. Thomas $3,215,471 $1,000,000 $81,718 $513,751 $1,106,250 $0 $513,752

2015 A. Thomas $2,796,831 $1,000,000 $59,571 $243,630 $1,250,000 $0 $243,630

2014 A. Thomas $1,537,809 $538,461 $61,843 $405,053 $127,400 $0 $405,053

2013 J.R. Gardner $4,895,380 $1,000,000 $90,840 $311,862 $969,435 $0 $2,523,243

2012 J.R. Gardner $6,620,983 $998,615 $117,107 $471,929 $1,215,000 $0 $3,818,332

2011 J.R. Gardner $7,677,182 $991,000 $132,747 $529,671 $1,738,246 $0 $4,285,518

NOTE

Performance Pay

Windstream CEO Compensation

Gardner resigned December 2014 and was replaced by Thomas. He received $6,437,867 in compensation in

2014. He received $3,000,000 severance in 2015.

Source: SEC Form 14A, various years

Time-Based Pay

CEOYear

Total Pay

Received

by CEO

(D+E+F+G+

H+I)

Share Price

18

185.46%

145.76%

80.21%

-26.00%

-97.03% -99.47%

Verizon S&P 500 AT&T CTL FTR WIN

Change in Telecom Share Prices 1/1/2010 to 2/28/2019

Source: Yahoo Finance, accessed March 1, 2019