Windstream Holdings Inc. filed for bankruptcy protection after losing a legal battle with hedge fund Aurelius Capital Management, WSJ Pro Bankruptcy reported. The rural broadband provider’s chapter 11 filing yesterday is the culmination of a bruising 18-month legal fight between the telecom company and Aurelius, which had argued a two-year-old spinoff of the company’s fiber-optic cable network violated the covenants on one of its bonds. Aurelius argued those covenants prohibited the company from engaging in sale-leaseback transactions. After the telecom company’s spinoff of its fiber assets into a new company called Uniti Group Inc., Windstream paid rent to Uniti to use the fiber-optic cable network. Two weeks ago, U.S. District Judge Jesse Furman ruled that Windstream violated the covenant on sale-leaseback transactions and awarded the hedge fund a judgment of $310 million plus interest. The battle highlights a growing practice among hedge funds of searching for instances where a company has violated bond covenants even though the issuer is healthy enough to continue to service and refinance its debt.
