S&P downgrades Uniti

S&P said it lowered Uniti Group Inc.'s issuer credit rating to CCC- from CCC+, along with the issue-level rating on its senior secured debt to CCC from B- and rating on the unsecured debt to C from CCC-.

The agency said it views Uniti's credit quality as tethered to that of Windstream Holdings Inc., its principal leasing tenant.

Windstream was also downgraded after a court ruling that it breached its sale and leaseback covenant under the indenture governing some of its senior notes.

As a result of the covenant breach, Windstream owes a noteholder a minimum of $310 million and faces heightened default and refinancing risks, the agency said.

In a potential bankruptcy of Windstream, the master lease agreement with Uniti would be subject to rejection or acceptance, the latter of which also could come with a renegotiation of terms that could negatively impact Uniti's revenues and cash flow, S&P explained.

In the event of a Windstream bankruptcy, the agency said it believes that the court ruling could spur claims from Windstream creditors against Uniti's assets based on the covenant breach and validity of the sale and leaseback transaction in 2015, which could ultimately hurt recovery prospects for Uniti lenders.

The negative outlook reflects the tight linkage of Uniti's credit profile to that of Windstream and greater uncertainty regarding the durability of Uniti's master lease in a potential Windstream bankruptcy proceeding, S&P said.

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