Windstream Bankruptcy: Potential Agent Commission Cuts a Concern

Windstream‘s decision Monday to file for chapter 11 bankruptcy protection has the channel buzzing, with clients worried, agents bracing for potential commission reductions and master agents hoping for the best.

Aurelius Capital Management, a Windstream bondholder, sued the communications giant, claiming its 2015 spinoff of copper and fiber assets into the Uniti Group real estate investment trust (REIT) breached their contract. The court then sided with Aurelius and said it is entitled to a judgment of nearly $310.5 million, plus interest after July 23, 2018.

On Tuesday, the court granted Windstream interim approval to access up to $400 million of its $1 billion in debtor-in-possession (DIP) financing. Windstream said this financing and cash generated by its ongoing operations will allow it to meet its operational needs and continue operating its business as usual.

Windstream’s debt totals about $5.8 billion in outstanding bonds and loans.

Sandler Partners’ Alan Sandler

Alan Sandler, managing partner of master agent Sandler Partners, noted how going into reorganization, everything has to be approved by the bankruptcy judge.

“They’re the ultimate ruler and can decide ‘yes or no’ to cutting off agent commissions,” he said. “There are lots of good reasons why they might choose to cut agent commissions, and only a few to keep paying them — so I can imagine them cutting agent commissions.”

The bankruptcy filing is affecting agents, and “there are intricacies of the agreements with Windstream – from both an agent and customer perspective – that affect the ability to move customers,” Sandler said.

“We’ll have to look at the terms and renewals clauses for customers, as well as a few other confidential clauses in the partner agreement, depending on your master agent’s agreement,” he said. “We are confident about the strategy our agents should follow based on our agreement with Windstream.”

Shane Stark, Carrier Access’ vice president of vendor and channel relations, and a member of the Channel Partners Editorial Advisory Board, said his company has received questions from some clients and “we’re seeking Windstream to get exactly what those answers are going to be.”

Carrier Access’ Shane Stark

“In the past when that happened, there’s been no interruption of service, but anytime something like this happens, people start to wonder what’s going on,” he said. “Most of these folks come out of [bankruptcy] better than they went into it.”

Stark said he sees this as an opportunity for Windstream to restructure, and “some take advantage of those opportunities and come out better, and some don’t.” For example, Cloud USA filed for bankruptcy and “never got back on track,” while Avaya “seems to be doing fairly well again,” he said.

“We’re not going to make any rash decisions,” he said. “With them being a LEC, it’s not like they’re just going to shut off service. I am nervous some clients may …

… overreact, but we will do whatever we can to keep our clients at bay and knowing what’s going on. We’ll assure them they’re not going to lose service because of this type of filing.”

In a video briefing prior to the filing, Adam Edwards, Telarus‘ CEO, said Windstream is still an operating entity, and “whether they declare bankruptcy or not, they have customers to service, they’re an ILEC with 911 responsibilities, and so the courts are going to want that entity to continue.”

Telarus’ Adam Edwards

“What we have seen in bankruptcies in the past and what our experience has been, bankruptcy judges want the organization to continue, to pay off creditors, to pay back shareholders, to continue their operation for the public good,” he said. “And that means typically partners of the largest agencies – the most productive agencies – continue to be paid because they’re continuing to sell. We’ve seen that in four instances in history. We’ve seen that with XO, with Allegiant, with MCI, and many saw it with TNCI — and we expect to see the same here. We expect to continue to be paid, we expect that they’re going to want to continue to support their customers and they’ve said as much in a public statement.

“We’ll see where the chips fall, but everybody needs sales and that means they need channel partners,” Edwards added.