Uniti Group and Windstream are accelerating their Growth Capital Improvements (GCI) initiative in 2021, with up to $225m, out of a total $1.75bn allocation, being invested into fiber-to-the-home deployments.
Master Lease Structure – Uniti Group and Windstream
The first step Uniti Group and Windstream took to establish their Growth Capital Improvements (GCI) partnership was creating two new Master Lease Agreements (MLAs). In September 2020, in connection with Windstream’s emergence from bankruptcy, Uniti Group and Windstream entered into two 10-year master lease agreements, which expire in April 2030. Specifically, these two leases consist of:
- ILEC MLA: Master lease that governs Uniti Group’s owned assets used for Windstream’s incumbent local exchange carrier (ILEC) operations
- CLEC MLA: Master lease that governs Uniti Group’s owned assets used for Windstream’s competitive local exchange carrier (CLEC) operations
Although the leases are in the form of two separate agreements, the leases contain cross-guarantees and cross-default provisions, for Windstream as the tenant.
Growth Capital Improvements (GCI) – Uniti Group and Windstream
As part of these leases, Uniti Group has total commitments to reimburse Windstream for up to $1.75bn of Growth Capital Improvements (GCI) in long-term fiber assets, constructed by Windstream. Specifically, Uniti’s fiber investments will be primarily for fiber-to-the-home builds, for Windstream’s Kinetic brand. Indeed, these Growth Capital Improvements (GCI) will occur, over 10 years, to expand Windstream’s 1 gigabit per second internet services.
Currently, Windstream has 1.1 million subscribers, under the brand Kinetic. Importantly, Windstream passes 200k homes with fiber and plans to connect millions of homes with fiber internet service over the coming years. Indeed, Windstream will use the Growth Capital Improvements (GCI) capital to make fiber upgrades in 13 of Windstream’s ILEC markets.
Overall, Windstream’s fiber network upgrade will allow it to better compete for broadband services in its markets. Additionally, the company can offset losses from the portion of its subscriber base that receive internet service over copper infrastructure.
Growth Capital Improvements (GCI) – Funding Schedule
Uniti Group’s total annual reimbursement commitments for the Growth Capital Improvements under both leases vary by year. Specifically, these commitments are:
- Year-1 (2020): $125m
- Years-2 to 5: $225m per year
- Years-6 to 7: $175m per year
- Years-8 to 10: $125m per year
As compensation for these Growth Capital Improvements (GCI), which Uniti is paying for, the company receives an annual rental payment. Specifically, a cap rate of 8%, payable one-year following first payment, is the compensation for the Growth Capital Improvements (GCI). Additionally, a 0.5% annual rental escalator, is applied to the cap rate, from the prior year.
Equipment Loan Program – Uniti Group and Windstream
During the Growth Capital Improvements (GCI) funding period, and in lieu of Growth Capital Improvement (GCI) commitments, Uniti Group will provide up to $125m in loans, at an 8% interest rate, for equipment purchases by Windstream. However, these equipment loans will only be made if Uniti Group’s total funding commitment for Growth Capital Improvements (GCI) and loans in any year does not exceed $250m. Additionally, the equipment loan commitment, in isolation, will not exceed $25m in any single year.
Growth Capital Improvements (GCI) Funding in Q3 2020
During Q3 2020, Uniti Group reimbursed $29.1m of Growth Capital Improvements (GCI) to Windstream. Subsequent to Q3 2020, Uniti Group has reimbursed an additional $38.1m of Growth Capital Improvements (GCI). Indeed, to-date Uniti Group has reimbursed a total of $67.2m of Growth Capital Improvements (GCI) to Windstream.
