In Re: Windstream Holdings, Inc.

Background

U.S. Bank National Association, acting as indenture trustee for certain unsecured Windstream notes, and CQS (US), LLC appealed two bankruptcy-court orders. One order approved a settlement between Windstream’s debtor companies and Uniti Group, Inc. The other confirmed Windstream’s First Amended Joint Chapter 11 Plan of Reorganization. The district court consolidated the appeals under No. 20 CV 4276; the related appeals were docketed as Nos. 20 CV 5440 and 20 CV 5529.

The settlement included transactions that provided Windstream with more than $1.2 billion in present value, including Uniti’s commitments to fund network improvements, provide equipment-purchase loans, purchase certain assets and contracts, and make additional payments. The settlement was also an integral part of the reorganization plan.

The plan partially repaid and converted some first-lien claims to equity, canceled junior debt, reduced Windstream’s debt burden by roughly $3.6 billion, and allowed the debtors to continue operating. Existing equity was canceled, reorganized equity was issued to first-lien claimants, and the plan included a new senior secured credit facility and a $750 million rights offering. The bankruptcy court confirmed the plan on June 25, 2020, and issued its written Confirmation Order on June 26, 2020.

Appeals and stay request

U.S. Bank and CQS timely appealed. They did not obtain a stay preventing the plan from becoming effective. On September 1, 2020, they requested a stay in the bankruptcy court, more than two months after the confirmation ruling. The bankruptcy court denied the request, finding that the appellants had not shown irreparable harm and that the public interest favored completing the plan. The plan became effective and was substantially consummated on September 21, 2020.

The appellants later sought a determination that the district court retained jurisdiction or, alternatively, a stay of the Confirmation Order. They proposed relief that would not formally vacate the plan, including issuing additional stock to unsecured creditors, taking back or diluting stock issued to secured creditors, or directing cash payments from the Uniti settlement to the appellants and other unsecured creditors.

Equitable mootness

The court applied the Second Circuit’s equitable-mootness doctrine. An appeal is equitably moot when effective relief might technically be possible but granting it would be unfair. In bankruptcy cases, substantial consummation of a reorganization plan creates a presumption that an appeal is moot. Substantial consummation occurs when most property transfers under the plan have occurred, the reorganized debtor has taken over the business, and distributions have begun.

An appellant may overcome that presumption only by satisfying five factors: the court must still be able to provide effective relief; the relief must not harm the debtor’s reemergence; it must not unravel complex transactions; affected parties must have notice and an opportunity to participate; and the appellant must have diligently pursued available remedies, including a stay.

Court’s reasoning

The court held that the plan had been substantially consummated, so the appeals were presumed equitably moot. The appellants’ failure to seek a stay promptly was fatal. They waited two months before first asking the bankruptcy court to stay implementation of the plan and requested a stay in the district court only three days after that.

The court also concluded that the proposed alternatives would jeopardize Windstream’s emergence from bankruptcy and disrupt the plan’s completed transactions. Diluting or taking back equity issued to secured and first-lien creditors could undermine the financial support on which the plan depended. Directing Uniti settlement cash to the appellants could reduce Windstream’s liquidity and diminish distributions already made to other creditors. The court determined that fairness therefore required denying the requested relief.

Disposition

The court ruled that the appeals were equitably moot and DISMISSED them. It directed the clerk to terminate the appeals and close the related cases. The opinion dismissed the appeals on equitable-mootness grounds and did not decide the appellants’ underlying challenges to the settlement or confirmation orders.