Uniti’s largest customer, Windstream Holdings, which represented 65% and 84% of Uniti’s 2019 revenue and EBITDA, respectively, emerged from Chapter 11 bankruptcy. Windstream has reduced its debt by more than $4bn (i.e., 2/3rds of total debt) and is now a privately-held company. Windstream is currently owned by its former creditors including Elliott Management (40%) and Franklin Templeton (16%).

Uniti and Windstream Growth Plans

Windstream plans to use $1.75bn of funding from its Growth Capital Improvements (GCI) program, which is financed by Uniti, to expand its 1 Gbps internet services. The GCI program will provide Uniti with an agreed-upon rate of return of 8% per year, growing at a 0.5% embedded escalator. Uniti’s capital will be used to upgrade Windstream’s network to fiber (from copper). This will allow Windstream to better compete in its markets and therefore become a stronger tenant.

Uniti will also acquire 2.2m fiber strand miles and third-party dark fiber Indefeasible Right of Use (IRU) contracts worth $30m of annual revenues. Uniti’s intention is to lease the excess capacity on the 2.2m fiber strand miles to customers in its pipeline.

Enhancing Financial Stability

Windstream still accounts for 65% and 84% of Uniti’s 2019 revenue and EBITDA, respectively. However, Windstream is now a significantly healthier tenant and Uniti has removed Windstream’s bankruptcy concern from the minds of investors. Additionally, the lease agreement with Windstream has become effective, which bifurcates the master lease into two pieces (ILEC and CLEC). Further, the leases have cross-guarantees accompanying them against Windstream’s holdings. Bifurcation of the master lease allows for Windstream to sell part of the master lease (i.e., its CLEC business). This would be a significant and beneficial step toward revenue diversification for Uniti.

Following Windstream’s emergence from bankruptcy, Fitch upgraded Uniti’s credit rating to B+ (Stable) from CCC (Positive). Additionally, Moody’s completed its periodic review of Uniti’s credit, with an upgrade expected to be forthcoming imminently. Uniti expects its credit ratings to further improve over the next 12 months. Improved credit ratings permit Uniti to have a lower cost of capital, through debt refinancing, and a resumption of M&A.

Uniti owns 118k fiber route miles, 6.5 million fiber strand miles and 2.4k small cells. Collectively, Uniti leases this digital infrastructure to 24.3k customers.

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