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Matt Levine

Aurelius Wins Against Windstream

Also speed bumps, McKinsey and the Vision Fund.

Ugh, nobody looks particularly good in this Windstream case, do they? Windstream Holdings Inc. is a rural telecommunications company that, in 2015, spun off its copper wires and fiber-optic cables into a real-estate investment trust (now called Uniti Group Inc.), and then leased the wires back from the REIT, because that’s how business works now. The problem is that Windstream had issued some bonds, and those bonds had covenants, and the covenants included a specific promise not to do this exact thing.  

Now this is not necessarily a dealbreaker: The covenant doesn’t mean that you can’t do it, though it does say that; it just means that you need to ask the bondholders’ permission to do it. If the sale-leaseback transaction is good for the company, and not too harmful for the bondholders, you can go out and seek a consent from the majority of your bondholders. You offer them a bit of extra money, they give you the consent, you do the thing. Windstream did not do that. Instead it just sort of ignored the covenant. I mean, not quite; Windstream did some structuring that allowed it to argue that it had complied with the covenant, but that argument was pretty weak, weak enough that I’m only going to discuss it in a footnote.  Certainly it ignored the spirit of the covenant, and mostly also the letter.