Fitch Upgrades Uniti's Senior Unsecured Notes to 'B'/'RR5'; Corrects Error

Published: 2025-06-17 04:55:18 ET UNIT

Published on 06/17/2025 at 04:55

Fitch Ratings has upgraded the Uniti Group LP's, Uniti Fiber Holdings Inc.'s and Uniti Group, Inc.'s unsecured ratings to 'B' with a Rating Recovery of 'RR5' from 'B-'/'RR6'.

The 'B+' Issuer Default Rating (IDR) and Rating Watch Negative (RWN) remains in place on all ratings.

The upgrade is due to the resolution of an error identified in the recovery analysis tool, following the recent co-issuance of $600 million in unsecured notes by Uniti Group LP and Uniti Fiber Holdings Inc. and the corresponding repayment of $500 million of the company's 10.5% senior secured notes. Correction of this resulted in increased recovery for the unsecured debts under our recovery waterfall and led to the upgrade to 'B'/'RR5'.

Key Rating Drivers

Windstream Acquisition: On May 3, 2024, Uniti announced its acquisition of Windstream Holdings, Inc. (Windstream). The merger is expected to close in 2H25, subject to customary closing conditions and approvals. Post-merger, Uniti shareholders will hold approximately 62% of common equity of the combined company. Windstream shareholders will receive $425 million of cash, $575 million of preferred equity in the new combined company, and common shares representing approximately 38%. Uniti obtained shareholder approval for the proposed merger in April 2025.

The merger will position the combined company in Tier II and Tier III markets and provide significant synergies and eliminate inefficiencies. Management projects up to $100 million in opex and $20 million-$30 million in capex synergies. Windstream shareholders will receive non-voting warrants to acquire up to 6.9% of common shares of the combined company. Uniti expects to fund the $425 million of cash consideration to Windstream shareholders with cash from operations, revolver borrowings and/or future capital markets transactions.

Revenue and Cash Flow Stability: Fitch expects the combined revenue and EBITDA of approximately $3.7 billion and $1.6 billion at FYE 2025. In addition to the stable long-term lease payments from Windstream, Uniti's standalone ratings incorporate Fitch's expectations for growth in its non-Windstream leasing business, as well as in its fiber segment. Fitch expects Uniti to derive over one-third of its revenue from telecommunications entities other than Windstream and through contracts providing fiber capacity to wireless carriers, enterprise, wholesale carriers and government entities.

The master leases with Windstream produced approximately $675 million in cash revenue in 2024 and will grow slightly due to escalators over time. Returns on Uniti's funding of growth capital improvements (GCIs) are incremental to this amount. The master lease expires on April 30, 2030. Fitch believes that although the MLA arrangement may continue post-close, the acquisition significantly reduces risk related to non-renewal under the common ownership.

Elevated Leverage: The combined company's pro forma net leverage was approximately 5.6x at YE 2024. Fitch expects leverage to increase to the high-5x range in 2025 due to revenue and EBITDA pressures from Windstream's legacy revenue and high capex for Fiber to the Home deployments to an additional million households. Windstream accelerated the timeline for the fiber investment, aiming to reach two million subscribers by the end of 2025 (up from the prior target of about 1.9 million by 2027). The company passes through 37% of its footprint and plans to pass through 43% by YE 2025. On a standalone basis, Uniti's Fitch-calculated net leverage was 6.3x at YE 2024.

Solid Liquidity: Liquidity at March 31, 2025 was approximately $592 million, consisting of about $92 million in cash and revolver availability of about $500 million. The $500 million revolving facility matures in September 2027. Windstream's term loan and revolver mature in 2031 and 2027, respectively, and $2.2 billion of combined senior secured notes are due in 2031. Fitch expects REIT interest coverage to remain near 2.0x over the forecast period.

FCF Remains Weak: Fitch expects FCF to remain weak for the next two to three years due to high capex. However, FCF should improve after 2027 as these expenditures decrease. Uniti's obligations on Windstream's settlement payments will end following a final payment in 3Q25, and GCI funding commitments will gradually decrease to $125 million from $225 million annually.

Parent-Subsidiary Linkage: Fitch equalizes Uniti Group Inc. and Uniti Fiber Holdings Inc.'s IDRs using a stronger subsidiary/weaker parent approach, based on open legal ringfencing and access and control. Uniti Group Inc. and Uniti Group LP's ratings are the same, as the parent is rated at the consolidated group profile level. Fitch will likely equalize Uniti and Windstream's ratings with the combined parent under our stronger parent path. Strategic incentive is high due to the subsidiaries' financial contributions and the critical advantage of combining an Opco and Propco. Operational incentive is high due to common ownership and elimination of inefficiencies post-merger.

Standalone Tenant Concentration: Windstream's master leases provide approximately 68% of Uniti's revenue. At the time of the spinoff, nearly all revenue was from Windstream. Improved diversi?cation is a positive for the company's credit pro?le, as major customer verticals outside of Windstream consist of large wireless carriers, national cable operators, government agencies and education.

Peer Analysis

Uniti's network is one of the largest independent fiber providers in the U.S., along with Zayo Group Holdings, Inc. The business models of Uniti and Zayo are unlike the wireline business of communications services providers, including AT&T Inc. (BBB+/Stable), Verizon Communications Inc. (A-/Stable) and Lumen Technologies (CCC+). Uniti and Zayo are infrastructure providers, which may be used by communications service providers to offer retail services including wireless, voice, data and internet.

The Windstream acquisition provides access to Windstream's 4.3 million Kinetic households. The combined company will own 237,000 national wholesale fiber route miles, with first mover advantage in Tier II and Tier III markets.

Uniti will de-REIT on acquisition close. Currently, as the only ?ber-based telecommunications REIT, Uniti has no direct peers. Uniti was formed through the spinoff of a signi?cant portion of Windstream's ?ber optic and copper assets. Windstream retained the electronics necessary to continue as a telecommunication services provider. Uniti's operations are geographically diverse, spread across more than 30 states, while the assets under the master lease with Windstream provide adequate scale.

Standalone Windstream has less exposure to the residential market than Frontier Communications Parent, Inc. (B+/Rating Watch Positive). The residential market held up relatively well during the coronavirus pandemic but still faces secular challenges. Consumers account for about one-third of Windstream's revenue but over half of Frontier's. Frontier will have a slightly larger scale than the combined company and operates at slightly lower leverage compared with the combined company's expected leverage of about 6x.

Key Assumptions

For the Combined Company

Fitch has assumed $3.7 billion of pro forma 2025 revenue for the combined Uniti and Windstream;

Pro forma 2025 EBITDA in the range of $1.5 billion-$1.6 billion in 2025 and 2026;

Combined pro forma capex expected to be $1.3 billion in 2025 and $1.1 billion in 2026;

Leverage near the 6x range.

Uniti Standalone

Revenue growth in the low single digits over Fitch's forecast from 2025 to 2028;

EBITDA margins in the 79%-80% range over the forecast;

Net success-based capital spending near $280 million in 2025, in line with the company's public net success-based capex guidance for fiber and leasing;

Fitch has reflected the terms of the settlement agreement with Windstream, including the settlement obligations and the funding of certain Windstream growth capital improvements;

No dividends assumed in forecast as Uniti suspended dividends starting in 2025.

Recovery Analysis

The recovery analysis assumes that Uniti would be considered a going concern in a bankruptcy and that the company would be reorganized rather than liquidated. Fitch has assumed a 10% administrative claim. The recovery analysis reflects Uniti's standalone credit silo waterfall. The revolver is assumed to be fully drawn.

The going-concern EBITDA estimate reflects Fitch's view of sustainable, post-reorganization EBITDA, upon which Fitch bases the valuation of the company. This leads to a post-reorganization EBITDA estimate of $700 million. EBITDA pressures could also result from increased competitive pressures from other fiber infrastructure companies.

Post-reorganization valuation uses a 6.0x enterprise value multiple. The multiple reflects the high-margin, large contractual backlog of revenue and high asset value of the fiber networks. Fitch uses this multiple for fiber-based infrastructure companies, for which historical transaction multiples are in in the high-single-digit range.

The multiple is in line with the range for telecom companies published in Fitch's 'Telecom, Media and Technology Bankruptcy Enterprise Values and Creditor Recoveries' report. The most recent report indicates a median of 5.4x.

Other communications infrastructure companies, such as tower operators, trade at enterprise value multiples in the double digits. Tower companies have lower asset risk and higher growth prospects, leading to multiples near 15x- 20.0x. Tower operators have low churn, as switching costs are high for customers to avoid service disruptions.

The recovery analysis produces a Recovery Rating of 'RR1' for the secured debt, reflecting strong recovery prospects, and 'RR5' for the senior unsecured debt, reflecting the lower recovery prospects of unsecured debt, given its position in the capital structure.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Uniti's RWN could be removed and the ratings downgraded to 'B' at close if Fitch expects that the combined company's credit metrics will not be in line with 'B+' telecom rated peers. Fitch could also downgrade the ratings if the Windstream merger does not close and metrics are outside Fitch's sensitivities for standalone Uniti;

On a standalone basis, Fitch's expectation that net debt/recurring operating EBITDA will sustain above 6.5x or that REIT interest coverage will be 2.0x or lower;

If Windstream's rent coverage approaches 1.2x, a negative rating action could occur. Rent coverage is measured as EBITDAR-net capex/rents, but Fitch will also consider Uniti's revenue and EBITDA diversi?cation. To calculate net capex, Fitch would reduce Windstream's gross capex by GCI funded by Uniti.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Fitch could resolve Uniti's RWN and affirm its IDR at 'B+' at close based on an expectation that the combined parent company's credit metrics will be in line with 'B+' rated telecom peers. Fitch could also affirm the ratings if the Windstream merger does not close and metrics are within Fitch's sensitivities for standalone Uniti;

On a standalone basis, Fitch's expectation that net debt/recurring operating EBITDA will sustain below 5.5x and REIT interest coverage is 2.3x or higher;

Demonstrated access to the common equity market to fund GCI, other investments or acquisitions.

Liquidity and Debt Structure

Uniti had approximately $592 million of liquidity on March 31, 2024, consisting of unrestricted cash of approximately $92 million and revolver availability of $500 million.

In early 2024, the company entered into an ABS bridge loan agreement for a secured, multi-draw term loan facility of up to $350 million. In February 2025, the company issued $589 million of new ABS notes with an anticipated repayment date in April 2030. Uniti used a portion of the net proceeds from the ABS notes to repay and terminate its ABS loan facility.

Uniti established an at-the-market common stock offering program in June 2020. The program allows for issuance of up to $250 million of common equity to keep the capital structure in balance when funding capex, as well as to finance small transactions.

Uniti has no major maturities until 2027.

Issuer Profile

Uniti, which operates as a REIT, was formed through a spinoff from Windstream Holdings, Inc. in April 2015. On May 3, 2024, the company announced a re-merger with Windstream.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.