Windstream 2014 Annual Report Download - page 78

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Windstream Holdings, Inc.
Windstream Corporation
Form 10-K, Part I
Item 1. Business
THE COMPANY
Unless the context indicates otherwise, the terms “Windstream,” “we,” “us” or “our” refer to Windstream Holdings, Inc. and
its subsidiaries, including Windstream Corporation, and the term “Windstream Corp.” refers to Windstream Corporation and
its subsidiaries.
ORGANIZATIONAL STRUCTURE
Windstream Holdings, Inc. (“Windstream Holdings”) is a publicly traded holding company and the parent of Windstream
Corporation. Windstream Holdings common stock trades on the Nasdaq Global Select Market under the ticker symbol “WIN”.
Windstream Corp. common stock, consisting of 1,000 shares outstanding, all of which are held by Windstream Holdings, does
not trade on any stock market. Windstream Corp. and its guarantor subsidiaries are the sole obligors of all outstanding debt
obligations and, as a result also file periodic reports with the Securities and Exchange Commission (“SEC”). Windstream Holdings
is not a guarantor of nor subject to the restrictive covenants included in any of Windstream Corp.’s debt agreements. The Windstream
Holdings’ board of directors and officers oversee both companies.
PROPOSED SPIN-OFF OF CERTAIN NETWORK AND REAL ESTATE ASSETS
On July 29, 2014, we announced plans to spin off certain telecommunications network assets, including our fiber and copper
networks and other real estate, into Communications Sales & Leasing, Inc. (“CS&L”), an independent, publicly traded real estate
investment trust (“REIT”). The REIT will lease use of the assets initially to us through an exclusive long-term triple-net lease with
an initial estimated rent payment of $650.0 million per year. We will continue to operate and maintain the assets in order to deliver
advanced communications and technology services to consumers and businesses. We will also continue to have sole responsibility
for meeting our existing regulatory obligations following the creation of the REIT. The REIT will focus on expanding and
diversifying its assets and tenants through future acquisitions. We will also contribute our consumer competitive local exchange
carrier (“CLEC”) business to the REIT, which will continue to operate this business.
The tax-free spin-off should enable Windstream to realize significant financial flexibility by significantly lowering long-term debt
and potentially allow us to accelerate broadband investments, transition faster to an IP network or pursue additional growth
opportunities to better serve customers.
As part of this proposed transaction, shareholders will retain their existing Windstream Holdings shares. The spin-off will be
completed through a pro rata distribution of no less than 80.1 percent of the outstanding shares of the REIT to existing Windstream
Holdings shareholders. After giving effect to the interest in the REIT retained by Windstream, each Windstream Holdings
shareholder is expected to receive one share of the REIT for every five shares of Windstream Holdings common stock held as of
the record date in the form of a tax-free dividend. We anticipate the REIT will raise approximately $3.65 billion in new debt, the
proceeds of which will be used to fund a cash payment to Windstream, the amount of which we expect to be approximately $1.2
billion, and to complete a tax-free debt exchange of existing Windstream Corp. debt obligations of approximately $2.35 billion.
Net of estimated transaction costs and financing fees, we expect to reduce Windstream Corp.’s total outstanding long-term debt
by approximately $3.4 billion through completion of the debt exchange and receipt of the cash payment from the REIT. At the
time of the spin-off, Windstream will retain a passive ownership interest in up to 19.9 percent of the common stock of the REIT.
Windstream intends to use all of its shares of the REIT opportunistically during a twelve-month period following the spin-off,
subject to market conditions, to retire additional Windstream Corp. debt.
On January 21, 2015, we announced that we have received all regulatory approvals from state public service commissions required
to consummate the transaction. In anticipation of the spin-off, we intend to reorganize certain of our subsidiaries, including
Windstream Corp., into limited liability companies and take certain other steps to facilitate the proposed transaction. At a special
meeting held on February 20, 2015, Windstream shareholders approved proposals to eliminate the requirement to conduct a
shareholder vote to effect the reorganization of Windstream Corp. to a limited liability company and to effect a reclassification
(reverse stock split) of Windstream Holdings common stock, whereby (i) each outstanding six (6) shares of common stock would
be combined into and become one (1) share of common stock and (ii) to decrease the number of authorized shares of common
stock proportionately from 1.0 billion shares to 166,666,667 shares following the spin-off.