Morgan Stanley Cuts Uniti's Price Target After Windstream Bankruptcy Filing

Windstream Holdings Inc (NASDAQ: WIN) was on the receiving end of an unfavorable and surprising ruling against hedge fund Aurelius Capital Management. This creates four unique outcomes for REIT company Uniti Group Inc (NASDAQ: UNIT) if Windstream proceeds with bankruptcy protection, according to Morgan Stanley.

The Analyst

Morgan Stanley's Simon Flannery maintains an Underweight rating on Uniti Group with a price target lowered from $16 to $7.

The Thesis

Flannery said under a best case scenario, Windstream will be able to get a stay to appeal the court's decision and this will allow lease payments with Uniti to proceed as usual. However, Uniti's ability to complete new transactions will now become complex as the current woes significantly raises Uniti's cost of capital.

See Also: Windstream Plummets After Filing For Chapter 11 Bankruptcy

If Windstream proceeds with bankruptcy protection, the potential impact to Uniti could be:

• The lease is accepted by the court while Windstream takes steps to restructure its debt;
• The lease is rejected and Uniti needs a new operator for its assets;
• The lease is renegotiated; or
• Windstream and Uniti revert to a single company and potentially lose their REIT status.

The next few weeks are "pivotal" and could include a dividend reduction from $2.40 per share per year to 80 cents per share per year, the analyst wrote in the note. As such, a bearish stance on Uniti's stock remains appropriate despite a decline of more than 50 percent since the ruling.

Price Action

Uniti's stock was trading lower by more than 6 percent at $9.94 per share Tuesday afternoon.