Windstream partners got an unexpected shock in the form of a letter saying their current agreements are null and void, and they are required to sign new agreements or risk being cut off from commissions.

Windstream filed for chapter 11 bankruptcy in February, and during a briefing at last month’s Channel Partners Conference and Expo, Curt Allen, Windstream Enterprise’s president of strategic channels, said the partner program included 31 standard agreements, “so the bankruptcy court has made it real clear that you’ve got to clean this up, this is a mess and I firmly agree with them. So we’re going to consolidate everybody onto a single agreement.”

Channel Partners obtained a copy of the letter sent last week. It says:

“As part of the restructuring we are focusing on consolidation of our partner agreements and making some changes to the terms of the agreements, including updated compliance standards and updated residual commission rates. We believe that you will find some of the changes to be advantageous to you, including additional commission incentives and clarification of commissions pertaining to certain rates, fees and taxes.”

The letter goes on to say that Windstream is “granted the right to assume or reject certain executory contracts under the bankruptcy code.”

“Through careful consideration, it is Windstream‘s opinion that your Windstream agreement mentioned above as amended would be beneficial to not only Windstream and its associated creditors but to you as a valued Windstream partner,” it said.

One smaller master agent representative, who asked not to be identified, said he has been working with Windstream for many years and his agreement included evergreen protections that are not part of the agreement he is being asked to sign. He also said the new agreement includes new sales and revenue requirements, and if they don’t sign, Windstream could either stop paying commissions or pay less than what was previously agreed upon.

He called the letter “intimidating” and “incredibly impersonal.”

“I’ve always had evergreen language without volume commitments,” he said. “If I sign this new agreement, I’m voiding all rights to evergreen that protects my business long term, and then there [are revenue] milestones every six months and every year, and then months after that.”

This comes at a time when it’s harder for partners to sell Windstream because customers are leery of the brand since it filed chapter 11, the master agent said.

“Unless I sign, I won’t get paid as of next month,” he said. “It’s basically … they’re focused on improving financials by cutting off agent money. I’m being treated as if my contract is the same as everybody else’s contract and the reality is some of those other agents, a lot of them have volume commitments, which I never agreed to.”

Ben Bronston, a longtime industry lawyer and authority on agent agreements, said he’s been contacted by many agents who are upset by the letter they received from Windstream. However, this certainly isn’t the first time that something like this has happened in the industry or channel, he said.

Ben Bronston

“There have certainly been other bankruptcies where agent agreements are subject to cancellation,” he said. “For example, in the TNCI bankruptcy, they did not assume all of the agent agreements. In fact, when they were acquired, TNCI was required to reject several agreements that the acquirer didn’t want. The bottom line is that bankruptcy is …

… the single biggest risk of the agent model. It’s a great business from a cash-flow standpoint; it’s even become attractive in terms of the potential for selling your agency. But as an agent you have far fewer sources of payment, so if one of your provider partners goes under and decides to reject your agent agreement as part of bankruptcy process, then you’re out of luck.”

The problem for agents is that as part of the bankruptcy process, Windstream “can put conditions on the assumption of agent agreements, like they’ve done here where the agent has to produce a certain amount of revenue within the first six months and their base can’t shrink beyond a certain percentage,” Bronston said.

Agents have a difficult decision to make regarding whether they’re willing to sign the agreement because Windstream is “holding these commitments over [their] heads, and it’s very difficult to sell Windstream right now because people either know they’re in bankruptcy or they’ve had bad experiences reqarding network performance or billing, or what have you,” he said. “My thought is agents should sign the revised agreement and live to fight another day because if they don’t, Windstream will cut them off and they’ll have nothing.”

As for evergreen, Bronston said “an evergreen clause is critically important for any agent agreement assuming the provider is going to stay in business, but if it goes bankrupt, all bets are off.”

“The bigger producers are the ones a bankrupt company are going to want to keep happy, so they are often the ones that end up coming out whole or close to it [post-bankruptcy],” he said. “The smaller guys are the ones who oftentimes end up getting left out in the cold.”

When contacted by Channel Partners, Allen said his company sent amendments to existing agreements outlining the program, which includes “significantly enhanced compensation for our strategic products.” He also said “we are pleased with the initial response from partners to the amended agreements.”

Windstream’s Curt Allen

“The new program will be smaller in number of partners, but will be larger in engagement and revenue production with no reductions in program resources, and we will invest more as we go forward,” he said. “Our ability to deliver resources to a more focused, manageable number of partners will greatly benefit the partners in the program.”

One of the principal responsibilities in the reorganization process is a fiduciary duty to review all executory agreements, including agreements with vendors, landlords and with partners, Allen said.

“We think the amended terms we settled on balances that fiduciary responsibility with reasonable engagement
requirements by our partners,” he said.

As for whether partners are having a harder time selling Windstream, Allen said his company continues to see “strong growth in our strategic sales, including SD-WAN and UCaaS.”

“Many of our partners are more engaged now,” he said. “We are confident that upon completion of the reorganization process we will be even better positioned to invest in our business, expand our speed and capabilities for our
customers, and compete for the long term.”