U.S. Bank National Association v. Windstream Services, LLC

Windstream Services, LLC (Windstream) (defendant) was a holding company for several subsidiaries. Windstream issued a series of notes pursuant to a note indenture. Under the indenture, Windstream was prohibited from engaging in leaseback transactions. The indenture also provided that any noteholder that held at least 25 percent of the value of the notes could notify Windstream of breaches of the indenture. If Windstream did not cure the breach within 60 days, it would default on the notes. The indenture explained that Windstream could issue additional notes under the indenture, but that those notes could not be issued in a way that increased Windstream’s indebtedness over a certain limit. In 2015 Windstream formed a parent holding company, Windstream Holdings, Inc. (Holdings), with which it shared the same office, same employees, and same directors. Windstream and Holdings spun off a real estate investment trust, Communications Sales & Leasing, Inc. (CSL), and transferred the assets of several subsidiaries to CSL. CSL then leased the assets back to Holdings. The subsidiaries continued to use their assets as they had before the spin-off. In 2017 Aurelius Capital Master, Ltd. (Aurelius), a Windstream noteholder owning over 25 percent of the value of the notes, notified Windstream that its 2015 transaction was a leaseback that violated the indenture. Windstream responded by issuing additional notes in an attempt to dilute Aurelius’s ownership interest. Windstream hoped that after the dilution, it would be able to secure a majority vote from noteholders willing to waive the default. The additional notes increased Windstream’s indebtedness beyond the limit allowed by the indenture. U.S. Bank National Association (U.S. Bank) (plaintiff), the indenture trustee, filed a lawsuit against Windstream for breaching the indenture. U.S. Bank argued that Windstream had defaulted on the notes because the 2015 transaction between CSL and Holdings was an improper leaseback transaction. U.S. Bank also argued that the new notes issued in 2017 could not cure the default because they were not issued in accordance with the indenture. Windstream opposed the lawsuit, arguing that the 2015 transaction was not a leaseback and that the new notes were issued appropriately.