Windstream plans to spin off a significant amount of its network assets into a publicly-traded real estate investment trust (REIT) in the first quarter of next year.
The American ISP and telco will put its fibre and copper networks, along with other…
Windstream plans to spin off a significant amount of its network assets into a publicly-traded real estate investment trust (REIT) in the first quarter of next year.
The American ISP and telco will put its fibre and copper networks, along with other real estate, into the tax-efficient unit.
Windstream expects the separation to cut its debt by US$3.2bn, resulting in the rural operator improving its free cash flow and lowering its debt-to-OIBDA ratio from 3.8x, as of Q1, to 3.3x.
Windstream will retain control of the infrastructure through a long-term triple-net lease with an initial rent payment of roughly US$650m per year.
The company said the spin-off will enable it “to accelerate network investments, provide enhanced services to customers and maximise shareholder value”.
Shareholders in Windstream will retain their existing stock and receive shares in the REIT commensurate with their Windstream holdings.
Following the spin-off, Windstream expects the annual dividend per share of the two combined companies to be US$0.70 per current Windstream share. Of this figure, the slimmed-down Windstream is expected to contribute US$0.10 per share, while the REIT will pay an annual dividend equivalent to US$0.60 per share.
BofA Merrill Lynch and Stephens are serving as exclusive financial advisers to Windstream, while BofA ML and JP Morgan are advising on the financing side. Skadden Arps Slate Meagher & Flom is serving as Windstream’s legal adviser.
Wells Fargo analyst Jennifer Fritzsche said the spin-off was a surprising move by Windstream and “a very confusing transaction”. However, she said it was positive for the company and simplified its core business focus and capital structure.
Jeff Gardner, president and CEO of Windstream, said: “This transaction will make Windstream a more nimble competitor in today’s increasingly dynamic communications marketplace and accelerate our deployment of advanced communications services.
“Additionally, the REIT will have geographically-diverse, high-quality assets and sustainable cash flows with the ability to grow and diversify over time.”
Once the tax-free spin-off is complete, Windstream said the REIT will raise US$3.5bn in new debt, which will be used to repay existing Windstream debt to effect the transaction.
Windstream’s CFO Tony Thomas will become CEO of the REIT, but he will remain in his current position until a successor is found. Windstream director Francis “Skip” Frantz will leave the telco’s board and become the REIT’s chairman.
