Day 3 Transcript

421
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1 UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
2 -----------------------------------------x
3 U.S. BANK NATIONAL

ASSOCIATION, solely in its
4 capacity as indenture trustee
of Windstream Services, LLC's
5 6 3/8% Senior Notes due 2023,
6 Plaintiff and
Counterclaim Defendant, New York, N.Y.
7
v. 17 Civ. 7857 (JMF)
8
WINDSTREAM SERVICES, LLC,
9
Defendant, Counterclaim
10 Plaintiff, and
Counterclaim Defendant,
11
v.
12
AURELIUS CAPITAL MASTER, LTD.,
13
Counterclaim Defendant
14 and Counterclaim Plaintiff.
15
-----------------------------------------x
16
July 25, 2018
17 9:30 a.m.
18 Before:
19 HON. JESSE M. FURMAN,
20 District Judge
21 APPEARANCES
22 FRIEDMAN KAPLAN SEILER & ADELMAN LLP

Attorneys for U.S. Bank National Association
23 BY: EDWARD A. FRIEDMAN
DANIEL B. RAPPORT
24 JEFFREY FOURMAUX
CHRISTOPHER COLORADO
25 BLAIR ALBOM
SOUTHERN DISTRICT REPORTERS, P.C.

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1 APPEARANCES CONTINUED
2 MASLON EDELMAN BORMAN & BRAND LLP

Attorneys for U.S. Bank National Association
3 BY: MICHAEL C. McCARTHY
4 KIRKLAND & ELLIS LLP

Attorneys for Windstream Services, LLC
5 BY: RICHARD GODFREY
AARON MARKS
6 IAN SPAIN
HARIKLIA KARIS
7 RICHARD U.S. HOWELL
8 ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP

Attorneys for Aurelius Capital Master
9 BY: WILLIAM TRUNK
LAWRENCE ROBBINS
10 JEFFREY KANE
WENDY LIU
11 BRANDON L. ARNOLD
DANIEL LERMAN
12
13 oOo
14 (Trial resumed)
15 THE COURT: You may be seated.
16 Good morning. Welcome back.
17 All right. We will continue in a moment with the
18 testimony of Mr. Cheeseman, I take it, is that correct?
19 MR. GODFREY: Correct, your Honor.
20 THE COURT: All right. A couple housekeeping-type
21 matters. First, my understanding is that Services' motion to
22 seal the two exhibits has been mooted by agreement to redact
23 information that is irrelevant and I'm not being asked to
24 consider, is that correct?
25 MR. MARKS: That is correct, your Honor.

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1 THE COURT: Great.
2 Second, I am formally overruling Aurelius' objection
3 to calling Mr. McCarty. I certainly understand the argument
4 and I will consider it, but, number one, I don't think his
5 testimony is limited to the question of whether a premium, if
6 there was a premium, was reasonably determined and, in any
7 event, I'll consider it on a complete record.
8 Lastly, just to give you a heads up about what I'm
9 thinking at the moment. I don't know if we'll finish today or
10 tomorrow morning, as you all suggested, but I think my plan at
11 the moment -- and I'll formalize this later -- would be to ask
12 you to come back probably early next week for something in the
13 nature of oral argument. But I would like a couple of days to
14 sort of wrap my head around the evidence and sort of organize
15 my own thinking.
16 I would endeavor, before you came back, to issue an
17 order directing your attention to particular issues or
18 particular questions that I would be most interested in your
19 addressing, since there are many, many different arguments
20 being made here. I think it would be helpful to organize it a
21 little bit, and that requires me to organize my thoughts a
22 little bit. So, that's sort of what I'm thing. I know a
23 couple of you are from out of town, and I apologize for having
24 to bring you back to town. But it is the great Big Apple, so
25 today's weather notwithstanding, I'm sure you won't complain.

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1 Anything else?
2 MR. GODFREY: Yes, your Honor. You had asked
3 yesterday for the Windstream exhibit number with respect to
4 Mr. Solomon's exhibit, which was a Bates stamp number but not
5 the Windstream exhibit number. We had promised to get that to
6 you at the end of the day yesterday and when we finished we
7 didn't give it to you, but it is Windstream Exhibit 52, your
8 Honor.
9 THE COURT: Great. Thank you.
10 MR. GODFREY: I think that answers the request. If
11 there is something further with respect to that, just let us
12 know and we will get you that cross-reference as well.
13 THE COURT: Thank you. Anything else before we carry
14 on?
15 MR. GODFREY: Not from the back table, your Honor.
16 MR. TRUNK: Not from the front table.
17 THE COURT: All right. Is Mr. Cheeseman here?
18 MS. KARIS: Yes, your Honor.
19 THE COURT: Great. And I'm pleased to say that
20 Ms. Smallman is back so someone will remember to swear the
21 witness.
22 Mr. Cheeseman.
23 STEPHEN CHEESEMAN,
24 called as a witness by Windstream,
25 having been duly sworn, testified as follows:

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I7pdusb1 Cheeseman - direct
1 THE CLERK: Would you please state and spell your full
2 name for the record.
3 THE WITNESS: Stephen Cheeseman; S-t-e-p-h-e-n,
4 Cheeseman, C-h-e-e-s-e-m-a-n.
5 THE COURT: You may proceed.
6 MS. KARIS: Thank you, your Honor.
7 DIRECT EXAMINATION
8 BY MS. KARIS:
9 Q. Good morning, Mr. Cheeseman. Next to you is a notebook. I
10 am going to ask you to take that notebook, if you will, and
11 look at the very top exhibit, which is a copy of the affidavit
12 that's been prepared. And that would be Exhibit 194.
13 Do you see that document?
14 THE COURT: That's Windstream 194?
15 MS. KARIS: Yes. Excuse me. It is Windstream Exhibit
16 194.
17 A. Number 1 tab?
18 Q. Yes.
19 A. Yes.
20 Q. OK. Do you recognize that document?
21 THE COURT: I'm looking at what he's looking at and I
22 don't think it is what you think he's looking at, so.
23 MS. KARIS: OK. May I approach?
24 THE COURT: You may.
25 A. Yes, I recognize this.

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1 Q. OK. Turn to the last page of Windstream Exhibit 194,
2 please. Do you see the signature on that page?
3 A. I do.
4 Q. Do you recognize that signature?
5 A. I do.
6 Q. Is that your signature?
7 A. Yes.
8 Q. And did you sign that affidavit?
9 A. I did.
10 Q. Did you sign it under penalty of perjury, as you understood
11 it?
12 A. No -- yes. I'm sorry.
13 Q. That would have made for an interesting morning.
14 Now that you understand the question, let me re-ask
15 it. Did you sign that affidavit under penalty of perjury as
16 you understood it?
17 A. Yes.
18 Q. OK. And --
19 THE COURT: Can you just move a little bit closer to
20 the microphone. If you are a few inches away, that is sort of
21 an ideal distance. Thanks.
22 Q. Does that affidavit set forth statements that are based on
23 your own personal knowledge?
24 A. Yes.
25 Q. Is there anything in the affidavit that you wish to correct

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1 before that testimony is submitted to the Court?
2 A. Yes.
3 Q. OK. Tell the Court what you wish to correct.
4 A. There is a reference to an Exhibit 80. That should be
5 Exhibit 84.
6 Q. OK. Is that at paragraph 6, there is a reference to
7 Exhibit 80 and in fact it is Exhibit 84?
8 A. Yes.
9 Q. So the content doesn't change but there is an incorrect
10 exhibit number specified, correct?
11 A. Yes.
12 Q. Now, other than that one typographical error, to the best
13 of your knowledge, are the statements in that affidavit true,
14 accurate, and correct?
15 A. Yes.
16 Q. With the one correction?
17 A. Yes.
18 MS. KARIS: Your Honor, at this time Windstream would
19 offer into evidence the direct testimony of Mr. Stephen
20 Cheeseman, which is Windstream Exhibit 194.
21 THE COURT: All right. It is admitted. The
22 objections are overruled.
23 To be clear, to the extent that there is testimony
24 concerning Aurelius' positions for trades, I'm not going to
25 consider that necessarily for the truth of the matter but for

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I7pdusb1 Cheeseman - cross
1 the -- to understand the witness' state of mind and why he did
2 what he did, or advised others to do what they did.
3 All right. With that understanding, it is admitted.
4 MS. KARIS: Thank you, your Honor.
5 (Defendant's Exhibit Windstream 194 received in
6 evidence)
7 THE COURT: Cross-examination.
8 MR. TRUNK: Thank you, your Honor. Just one moment.
9 We will gather some notebooks.
10 Permission to approach, your Honor?
12 CROSS-EXAMINATION
13 BY MR. TRUNK:
14 Q. Good morning, Mr. Cheeseman.
15 A. Good morning.
16 Q. I have just handed you a notebook and I'll ask you, please,
17 to turn to Tab 1 of that of notebook?
18 A. Yes.
19 Q. Do you recognize that, sir, to be the direct testimony
20 affidavit that you submitted in this matter?
21 A. Yes.
22 Q. And you signed that affidavit under penalty of perjury,
23 sir?
24 A. Yes.
25 Q. Just checking.

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1 Sir, Windstream asked that you submit this affidavit
2 in this matter?
3 A. Yes.
4 Q. And you, sir, led the team at Citi that helped to advise
5 Windstream in connection with the exchange-and-consent
6 transaction that closed in or about November 6, 2017, is that
7 right?
8 A. Yes.
9 Q. And for ease of reference, I may at times refer to that as
10 the November transaction; is that fair enough?
11 A. There were two transactions, in October and in November.
12 Q. So -- yes. For clarification, sir, I'm referring to the
13 transaction that closed on or about November 6th in which
14 certain of Windstream's unsecured notes were exchanged for new
15 6-3/8 notes due August 2023?
16 A. Understood.
17 Q. Are you with me?
18 A. Yes.
19 Q. Now, sir, for its role in connection with the November
20 transaction, am I correct that Citi was paid approximately $7
21 million?
22 A. Yes.
23 Q. And by the way, Citi was paid in cash, right?
24 A. Yes.
25 Q. Not notes?

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1 A. No. In cash.
2 Q. In cash. Sir, would you please turn to paragraph 17 of
3 your affidavit. And it's also on your screen, sir, and you'll
4 see we're training your attention on the last sentence of that
5 paragraph.
6 And do you see, sir, where you say that you understood
7 that Windstream had limited capacity under its existing debt
8 covenants to issue new secured debt? Do you see that?
9 A. Yes.
10 Q. And, sir, it's your testimony that one key constraint on
11 Windstream's ability to issue new debt was its existing debt
12 covenants?
13 A. Yes.
14 Q. Turn, sir, if you would, to paragraph 21. That, again, is
15 on your screen, if you would like.
16 And here, again, you say, among other things, that,
17 "covenants in the relevant credit agreement prohibited using
18 first lien debt to redeem unsecured debt." Do you see that?
19 A. Yes.
20 Q. Sir, you would agree with me that a company simply cannot
21 issue new debt when its existing bond covenants forbid it from
22 doing so?
23 A. No.
24 Q. Would you agree with me that absent a waiver from existing
25 creditors, a company cannot issue new secured debt if issuing

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1 that debt would violate one of its covenants?
2 MS. KARIS: Object to form and foundation.
3 Q. I'm just asking about your understanding, sir.
4 A. So my --
5 THE COURT: Hold on one second.
6 What is the foundation issue?
7 MS. KARIS: Form issue. It is related to the form
8 issue. Is he speaking to this Indenture? Is he speaking
9 generally?
10 THE COURT: I think he's speaking generally, is that
11 correct?
12 MR. TRUNK: Correct.
13 THE COURT: All right. Overruled.
14 A. "Issue" as in issued new money to the market, if the
15 covenant is prohibited, then, yes, there is a restriction. You
16 can't issue new money to the market if your credit agreement
17 doesn't allow you to have that.
18 Q. Because, among other things, am I right, sir, that
19 bondholders place value on covenants?
20 A. Yes.
21 Q. And they place reliance on covenants when making investing
22 decisions?
23 A. Yes.
24 Q. And would you agree with me that a bond indenture is a
25 contract?

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1 A. Yes.
2 Q. And would you agree with me that a contract needs to be
3 taken seriously?
4 A. Yes.
5 Q. Now, let's turn back, sir, if we could to the November
6 transaction. OK?
7 Am I correct, sir, that the November transaction, in
8 your opinion, was a business solution to the Notice of Default
9 that Aurelius sent to the company in September of 2017?
10 A. Part of the transaction, yes.
11 Q. You would agree with me, sir, that the transaction was a
12 business solution to the Notice of Default that Aurelius sent
13 in September of 2017?
14 A. Part of that, yes.
15 MR. TRUNK: Joe, let's take a look at the deposition,
16 if we could. 207.
17 Q. Sir, I asked you this question at your deposition, whether
18 you agreed with the proposition that the exchange transaction
19 was a business solution to the Aurelius-noticed default. Do
20 you see that?
21 A. Yes.
22 Q. And your answer to me was what?
23 A. Yes.
24 Q. Now, sir -- you can take that down, Joe.
25 You've testified that the November transaction offered

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1 significant benefits to Windstream by way of maturity extension
2 and liquidity improvement, am I right?
3 A. Yes. It also provided consents on all the other series as
4 well to -- it provided consents on all the other series as part
5 of the transaction.
6 Q. Sure. Another benefit was it helped to dilute Aurelius,
7 right?
8 A. Part of the benefit was achieving consents on all series of
9 bonds.
10 Q. But in your mind, a significant benefit to the transaction
11 was the maturity extension and the liquidity benefits that
12 redounded to Windstream?
13 A. Yes, it was a big benefit.
14 Q. Take a look, in particular, at paragraph 24 of your
15 affidavit. That, again, is on your screen, sir.
16 You will see, toward the middle of that paragraph, you
17 say that the transaction would allow Windstream to achieve its
18 goal of extending debt maturities and reducing ongoing interest
19 payments. Do you see that?
20 A. Yes.
21 Q. And, in fact, do you recall at your deposition, you told me
22 that you regarded those benefits, which is to say the maturity
23 extension and liquidity benefits, to be so significant that you
24 thought they were equally important as the goal of diluting
25 Aurelius; do you remember that?

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1 A. I do.
2 Q. And in fact, you regard those -- the maturity extension and
3 liquidity benefits to be so significant that you would have
4 advised the company to do the very same transaction even if
5 Aurelius didn't hold any bonds in the 6-3/8 series, right?
6 A. They did two other transactions similar to that as well
7 subsequent.
8 Q. Sir, my question was, you told me at your deposition, did
9 you not, that you would have advised Aurelius -- I'm sorry, you
10 would have advised Windstream to do the very same transaction
11 even if Aurelius didn't hold any 6-3/8 notes, right?
12 A. Yes.
13 Q. Now, I want to talk for a moment about those maturity
14 extension and liquidity benefits that you say were so material.
15 Do you recall, sir, there came a point in time when
16 Windstream asked whether it should include in the term sheet
17 that was going to prospective bondholders a bullet point
18 summarizing those maturity extension and liquidity benefits; do
19 you remember that?
20 A. Yes.
21 Q. And, again, this was a term sheet going to bondholders who
22 would, among other things, place reliance upon that document in
23 making investing decisions, right?
24 A. Yes.
25 Q. And you would agree with me that when you're sending a term

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1 sheet to prospective investors, it's important to be complete
2 and accurate?
3 A. This was a private negotiation --
4 Q. Sir, that wasn't my question.
5 A. OK.
6 Q. Can you answer my question yes or no?
7 A. Could you repeat the question?
8 Q. Sure. Would you agree with me when you're sending a term
9 sheet to prospective investors, it's important to be complete
10 and accurate?
11 A. Yes.
12 Q. Thank you.
13 Now, let's take a look at what you said when
14 Windstream asked whether this bullet point should be included
15 in the term sheet.
16 Joe. Actually, take a step back -- no, that's
17 actually fine.
18 We've blown up here the email to you from Ms. Grumbos
19 at Windstream; do you see that?
20 A. Can I see the whole email?
21 Q. Sure.
22 MR. TRUNK: Let's take it a step back, Joe.
23 Q. Are you oriented, Mr. Cheeseman?
24 A. Now I am.
25 Q. And you'll see that Ms. Grumbos in the middle of this page

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1 sends you an email asking should we also include a bullet
2 point -- excuse me, a bullet at the top that talks about
3 maturity management and improved liquidity. Do you see that?
4 A. Yes.
5 Q. And let's take a look at how you respond.
6 THE COURT: You need to make a record of what the
7 exhibit is, please.
8 MR. TRUNK: I'm sorry. It is AX108, Cheeseman Exhibit
9 16.
10 THE COURT: What is the "Cheeseman exhibit" part?
11 MR. TRUNK: I'm sorry. That is referring to his
12 deposition. The relevant exhibit is AX108.
13 THE COURT: OK.
14 Q. Sir, would you mind reading into the record how you respond
15 to Ms. Grumbos?
16 A. "I don't want bondholders to think win values that benefit
17 so I would prefer to leave that off."
18 Q. Sir, you did not regard maturity extension and liquidity
19 improvement to be important components of the transaction to
20 share with bondholders at that point in time, am I right?
21 A. Correct.
22 Q. Now, sir, taking it a step back, Windstream increased the
23 principal amount of its indebtedness in connection with the
24 November transaction, am I right?
25 A. From a nominal perspective, yes.

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1 Q. I'm going to ask the question again.
2 Did Windstream increase the principal amount of its
3 indebtedness in the November transaction?
4 A. Yes.
5 THE COURT: Yes or no? All right.
6 Q. Now, in particular, the company increased its indebtedness
7 by more than $40 million if you focus on the portion of the
8 exchange in which unsecured notes were traded for new 6-3/8
9 notes, is that right?
10 A. The face amount of $40 million. They didn't receive cash
11 of $40 million.
12 Q. I have no idea what that means. Did Windstream increase
13 the principal amount of its indebtedness by more than $40
14 million if you focus only on the exchange into the 6-3/8
15 series?
16 A. The principal amount was increased by $40 million.
17 Q. And that was because of, sir, the exchange ratios that were
18 used by the company, am I right?
19 A. Correct.
20 Q. And just to be clear, when we say "exchange ratios," that
21 means that for every one-hundred dollars in existing unsecured
22 notes, the company issued more than a hundred dollars in new
23 6-3/8 notes to tendering bondholders, am I right?
24 A. Yes.
25 Q. And, indeed, because of those exchange ratios, the company

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1 increased the principal amount of its indebtedness for every
2 bondholder who exchanged, right?
3 A. Yes.
4 Q. Let's take a look at paragraph 24 of your affidavit, if we
5 could.
6 And that, again, is on your screen, sir. You'll see
7 that you say, among other things, that there were provisions of
8 the August 2023 Indenture that authorized the issuance of an
9 unlimited amount of additional notes. Do you see that?
10 A. Yes.
11 Q. But you would agree with me, sir -- by the way, have you
12 reviewed the August 6-3/8 notes due August 2023, have you read
13 that bond Indenture?
14 A. Briefly.
15 Q. Did you say "briefly"?
16 A. Yes.
17 Q. But you read it sufficiently to offer the proposition that
18 you do here, that there are provisions in that Indenture that
19 allow the company to issue an unlimited amount of additional
20 notes?
21 A. When we rely on reviewing provisions in indentures, we ask
22 our external counsel to review those so that review of the
23 provisions in the Indenture that allow authorization is based
24 on legal advice from the lawyers that advise us, both company
25 and through manager counsel.

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1 Q. So this portion of your affidavit, sir, is based simply on
2 what a lawyer told you, is that right?
3 A. Several lawyers.
4 Q. Several lawyers. So you don't personally harbor a belief
5 that there are provisions in the August Indenture that
6 authorized the company to issue an unlimited amount of
7 additional notes other than what several lawyers told you?
8 A. Based upon the research that I did with asking advice from
9 experts that are indenture readers, we -- I used that judgment
10 rather than my own judgment, which is not from a legal basis.
11 Q. When you say "expert indenture readers," are you referring
12 to lawyers?
13 A. Yes. Security lawyers.
14 Q. So, to be clear, what you say here is based on what lawyers
15 told you, yes?
16 A. Yes.
17 THE COURT: Let's be precise. I take it what you say
18 here includes both the advice that you gave to Windstream and
19 also the proposition that that was permitted under the
20 Indenture. I take it the latter is what you learned from
21 lawyers, is that correct? That is to say, to the extent that
22 you testify in this paragraph that the best option among the
23 available options was this one, that is your view -- your
24 personal view and not solely based on lawyers, is that correct?
25 THE WITNESS: Yeah. We asked a variety of different

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1 ways we could do the transaction and what is permissible, and
2 what came back from counsel in prelaunch and preapproaching
3 bondholders was a determination that the exchange offer as
4 structured is legal.
5 THE COURT: But the proposition that it was the best
6 viable option, is that something that you learned from lawyers
7 or is that based --
8 THE WITNESS: That's based --
9 THE COURT: The fact that it was a viable option was
10 based in part on legal advice, I take it?
11 THE WITNESS: Yes. But from an execution perspective,
12 the approaching bondholders, that is where we determined -- I
13 determined that the exchange was the best viable option.
14 THE COURT: OK. You may proceed.
15 MR. TRUNK: Thank you, your Honor.
16 BY MR. TRUNK:
17 Q. Now, let's follow up on that same topic, sir.
18 You recall that there was some discussion
19 contemporaneously about whether the November transaction could
20 be justified as permitted refinancing indebtedness under the
21 Indenture?
22 A. Where is this? I'm sorry.
23 MR. TRUNK: I'm sorry, Joe. You could take that down.
24 Q. I'm asking a general question now, sir.
25 Do you recall that contemporaneously there was some

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1 discussion about whether the November transaction was
2 authorized as permitted refinancing indebtedness under the
3 Indenture? Do you remember that?
4 A. Yes.
5 Q. And we discussed this -- and, by the way, do you recall
6 that that's in Section 409 of the Indenture?
7 A. No, I do not.
8 Q. Fair enough.
9 Do you recall we discussed this at your deposition,
10 and you told me that that question, which is to say the
11 question whether this transaction was justified as permitted
12 refinancing indebtedness, that question was outsourced to
13 Windstream and its lawyers?
14 A. Yes.
15 Q. Because, among other things, it was not Citi's
16 responsibility to assess whether Windstream was in compliance
17 with its bond covenants, right?
18 A. Yes.
19 Q. And, in fact, you cannot recall a single conversation about
20 whether the increased indebtedness associated with the November
21 transaction was permissible under Windstream's bond indentures?
22 A. No.
23 Q. No, you can't remember?
24 A. There were conversations that were there. I don't recall
25 finer details, but there is bankers and lev fin professionals

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1 within Citi that also ruled and read and had communication with
2 the lawyers to make sure that everything was in compliance with
3 the transactions that were being proposed.
4 Q. So a moment ago you told me that this question whether it
5 was permissible under the Indenture, you knew that only because
6 lawyers told you, but now you're telling mean that there were
7 other colleagues within Citi who told you that, is that right?
8 A. The lawyers were the ones that I used my judgment for
9 regardless of what people at Citi and their views of the read
10 were --
11 Q. To be clear, sir, now you are recalling additional
12 conversations than the ones you were referring to a moment ago,
13 yes or no?
14 A. I am -- I know there was talk about it. I don't recall any
15 specific one-on-one conversations or anyone asking my opinion
16 about this or thoughts. My only conversations were, is this
17 something we can do.
18 Q. And to be clear, and then I want to look at your deposition
19 for a moment, you are now -- as you sit here today, you were
20 recalling conversations in which you discussed whether the
21 increased indebtedness associated with the November transaction
22 was permissible under the Indenture; you were recalling those
23 conversations as you sit here today?
24 A. I don't recall the conversations. I don't know when they
25 happened. I just remember the term "permitted indebtedness"

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1 was discussed and I asked the question "Is this a transaction
2 that we can do" to the lawyers, and the response back was yes.
3 MR. TRUNK: Joe, can you pull up the deposition
4 transcript at 191?
5 Q. Do you see, sir, I asked you at your deposition, "Do you
6 recall any discussions about whether the company's increase in
7 its indebtedness was permissible under Indenture?"
8 And you said what?
9 A. "No."
10 Q. And nor can you recall, by the way, a single discussion
11 about mitigating, to the extent possible, the increase in
12 Windstream's indebtedness?
13 A. Correct.
14 Q. Correct, you don't recall any such discussions?
15 A. Yes. Again, discussions with --
16 Q. Sir, the question was do you recall a discussion or not?
17 A. I don't recall any conversations.
18 Q. And, so long as you receive the go ahead, whether it be
19 from Windstream or Windstream's counsel that they thought this
20 was OK, that's all you needed, right?
21 A. That's correct.
22 Q. And the rationale did not concern you?
23 A. Yes.
24 Q. OK. And, sir, you did not form an independent view as to
25 whether the new 6-3/8 notes issued in November of 2017

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1 constituted permitted refinancing indebtedness within the
2 meaning of the Indenture?
3 A. My opinion was, again, based on advice externally.
4 Q. Sir, have you ever studied the definition of permitted
5 refinancing indebtedness in the Indenture?
6 A. No.
7 Q. Do you think you've ever looked at it?
8 A. I don't recall.
9 Q. OK. Well, let's take a look at it, and then I want to ask
10 you some general questions.
11 MR. TRUNK: Joe, can you pull up the PRI definition?
12 THE COURT: I don't know what your plan is here, but
13 to the extent that you are going to try and elicit testimony
14 from this witness about his legal conclusion about whether it
15 is permitted, don't try.
16 MR. TRUNK: That's fair enough. I've learned that
17 lesson from my colleagues.
18 I wanted to ask some questions about the word
19 "premium," which we discussed at Mr. Cheeseman's deposition.
20 THE COURT: All right. I just wanted to lay down the
21 marker, as they say.
22 MR. TRUNK: Fair enough.
23 BY MR. TRUNK:
24 Q. Now, sir, I understand you've said you've not studied this
25 provision but I wanted to put it up just to lay some groundwork

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1 because you may recall we discussed at least some of these
2 concepts at your deposition.
3 Now, if we just focus on subprovision 1. You could
4 just take a moment --
5 A. Can I see the whole document again, please?
6 Q. The entire Indenture?
7 A. No, the paragraph. You took it away just now.
8 MR. TRUNK: Sure. Joe, why don't you take it back.
9 THE WITNESS: Just give me a second.
10 (Pause)
11 A. OK. Got it.
12 Q. OK. Are you oriented, sir?
13 A. I am.
14 MR. TRUNK: Joe, let's take a look at subprovision 1.
15 Q. And I don't want to -- we don't need to go through this in
16 much detail, sir, but you'll see that this provision says, in
17 sum and substance, that the amount of any permitted refinancing
18 indebtedness shall not exceed the amount of the indebtedness so
19 extended, refinanced, etc., do you see that?
20 A. I do.
21 Q. Then there is a parenthetical which I want to focus your
22 attention on, beginning "Plus," and it goes on to identify
23 three categories of expenses that are exceptions to that
24 general principal for principal principle, for lack of a better
25 term. And do you see, sir, that the second of the two -- or

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1 the second of the three, rather, expenses is what's referred to
2 as a reasonably determined premium necessary to accomplish; do
3 you see that?
4 A. I do.
5 Q. And I wanted to just ask you a couple of questions about
6 what you understand the word "premium" to mean because we
7 talked about this at your deposition; do you remember that?
8 A. Yes.
9 Q. Now, you told me at your deposition that at least in your
10 understanding in the industry, "premium" refers to a value
11 premium, right?
12 A. Yes.
13 Q. And you also told me that you believed that only a fraction
14 of the exchange ratios in the November transaction constituted
15 a premium, right?
17 Q. Sure. At your deposition, you told me that it was only a
18 fraction of the exchange ratios that actually constituted a
19 premium in your view; do you remember that?
20 A. Yes.
21 Q. And, in fact, you told me it was close to nothing, if
22 anything; do you remember that?
23 A. I don't recall but --
24 Q. As you sit here, is that how you would characterize the
25 proportion of the exchange ratio that you believed to be a

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1 premium, "close to nothing, if anything"?
2 A. Yes.
3 Q. But you couldn't tell me at your deposition, and I assume
4 you can't tell me today, the exact amount -- the exact
5 proportion of the exchange ratio that constituted a premium
6 because, in your words, calculating these exchange ratios is
7 more of an art than a science, am I right?
8 A. Yes.
9 Q. I want to switch gears, if I could.
10 Do you recall, sir, that there were certain large
11 bondholders in the 2021 and 2022 bond series who held out in
12 the first November exchange, the November 6 transaction; do you
13 remember that?
14 A. Yes.
15 Q. And those bondholders wanted to continue negotiating the
16 terms of the exchange, right?
17 A. Yes.
18 Q. But you expected, you told me, that once you could work out
19 the exchange terms with those large bondholders, that you
20 expected that they would ultimately furnish their consents in
21 the consent solicitations that were ongoing, right?
22 A. Yes.
23 Q. And, in fact, the company eventually reached an agreement
24 with those holdouts and they did in fact provide their consents
25 in the 2021 and 2022 series, right?

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1 A. Yes.
2 Q. Now, do you recall, sir, that Windstream exchanged -- take
3 a step back. The second exchange by which 2021 and 2022
4 holders furnished their consents and traded into new series,
5 the notes into which they traded were 8.75 percent notes due in
6 2024, right?
7 A. Yes.
8 Q. And do you also recall that there was a provision in that
9 second exchange by which Windstream agreed to pay those
10 tendering bondholders $150 million in cash to redeem certain of
11 those new notes at par; do you recall that?
12 A. There was a provision for a sinking fund and I believe that
13 is the number.
14 THE COURT: Can you explain what you mean by a
15 "sinking fund"?
16 THE WITNESS: Sure. So a bond has various maturities
17 and it could have -- older bonds that could have part payments,
18 so if there is a mortgage and it pays in a serial amount over
19 time, the Indenture and the credit agreement allowed, based on
20 advice from the lawyers, that a maturity of a sinking fund can
21 be achieved and that as part of the exchange and an incentive
22 for bondholders to participate, we are added a sinking fund to
23 the maturity. So it had a prepaid -- it had an earlier
24 maturity for 150 and it had a maturity for the rest in 2024.
25 THE COURT: All right. My question was just what do

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1 you mean by "sinking fund"? Can you just define what that term
2 means?
3 THE WITNESS: Partial maturity --
4 THE COURT: OK.
5 THE WITNESS: -- of the notes.
6 BY MR. TRUNK:
7 Q. Sir, the net result, whether -- setting aside the
8 terminology, the net result was that these bondholders who
9 received these new 2024 notes received the cash payment of $150
10 million in February of 2018, right?
11 A. They received a redemption of their principal in the form
12 of cash.
13 Q. They received $150 million in cash to redeem their new 2024
14 notes at par, correct?
15 A. Yes.
16 Q. And, sir, that $150 million, do you recall that that was
17 actually funded by Windstream's revolving line of credit?
18 A. I don't recall.
19 MR. TRUNK: OK. Joe, could you actually pull up, just
20 to see if this refreshes your recollection, AX300 at 81.
21 Actually, Joe, start with the cover page, if you
22 would.
23 Q. Do you recognize this document, sir?
24 A. No.
25 Q. Do you think you've reviewed Windstream's 10-K for the

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1 period ending 12/31/17?
2 A. No.
3 Q. OK. I just want to show you a portion of it to see if it
4 refreshes your recollection about the question I asked you a
5 moment ago.
6 MR. TRUNK: Joe, just shoot to -- there it is.
7 Q. And do you see here, sir, it says that the 2024 notes
8 require a one-time mandatory redemption payment of $150 million
9 payable on February 26, 2018, which was funded using available
10 borrowing capacity under the revolving line of credit? Do you
11 see that?
12 A. Yes.
13 Q. Do you think you knew before today that the company used
14 the revolving line of credit to make that payment?
15 THE COURT: Sustained.
16 MR. TRUNK: OK. Let's move on.
17 Q. Do you recall, Mr. Cheeseman, there came a point in time
18 when Citi proposed to Windstream that it structure the November
19 transaction as a par-for-par exchange with a cash component?
20 A. We looked at various structures and we were told that
21 cash --
22 Q. Sir, I asked a pretty simple question. Do you recall that
23 there was a point in time when that option was considered?
24 A. Yes.
25 Q. OK. And just to be clear, this would have -- this would

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1 have meant that the company would issue new 6-3/8 notes to
2 bondholders at a one-for-one ratio, meaning the company would
3 not increase the principal amount of its debt, and it would
4 make a cash payment to those bondholders in connection with
5 that exchange, right?
6 A. Yes.
7 Q. And, in fact, this was your idea, right?
8 A. We considered many ideas, so, yes.
9 Q. But this was your personal idea?
10 A. No. The idea that we initially came upon when we were
11 hired was a bank that had a proposal that had cash in it, and
12 we revised that, based on feedback, to come up with a no-cash
13 proposal. We analyzed it, yes, but the cash proposal that we
14 were at, we were offered -- we were told to have a no cash --
15 come back to the company with no cash proposals and --
16 Q. Sir, I'm sorry. It's your recollection that this was not
17 your idea; is that your testimony?
18 A. I had an idea but an alternate bank had the idea as well.
19 Q. OK. Let's talk about this idea, if we could. Could we
20 look at paragraph 31 of your affidavit.
21 And it's also on your screen, if you would like.
22 Do you see, sir, you describe here a proposed
23 structure of a debt-for-debt exchange that might have a cash
24 component? Do you see that?
25 A. Yes.

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1 Q. And you say, "After a significant amount of discussion and
2 analysis of the illustrative costs of a partial-cash
3 transaction, Windstream advised Citi that it had determined
4 that the potential issues with the covenants on its first lien
5 revolver facility and the ongoing liquidity needs of the
6 business made a pure debt-for-debt exchange superior to
7 including a cash component."
8 Do you see that?
9 A. Yes, I see it.
10 Q. So it's your testimony, as you sit here today, sir, that
11 there was a significant amount of discussion and analysis, and
12 the idea ultimately was rejected due to covenant issues and
13 liquidity issues, right?
14 A. Yes. We were told by the company to --
15 Q. I want to ask you a couple of follow-up questions, if we
16 could.
17 Let's take a look -- by the way, do you remember we
18 discussed this topic at your deposition?
19 A. I do.
20 Q. OK. And I asked you what you remembered about why the
21 par-for-par exchange with a cash component was rejected. Do
22 you remember that?
23 A. I do.
24 Q. Let's take a look at what you said.
25 MR. TRUNK: Joe, 80, 15 to 22, please.

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1 MS. KARIS: Your Honor, improper impeachment. There
2 is not even a question on the table.
4 BY MR. TRUNK:
5 Q. Do you see, sir, this is page 80 of your deposition.
6 MS. KARIS: Objection.
7 THE COURT: Sustained. Sustained.
8 MR. TRUNK: OK. Fair enough.
9 Q. Sir, do you recall discussing with me -- actually, let's
10 take a look at paragraph 69 of your affidavit, if we could.
11 And that's also on your screen, Mr. Cheeseman.
12 Do you see here you remark that Citi considered the
13 exchange offer and consent solicitation transactions to obtain
14 a highly favorable result for Windstream, right?
15 A. Yes.
16 Q. And you go on to say that "Bondholders would have lost a
17 very large amount, likely in excess of $1 billion, if
18 Windstream was forced into bankruptcy." Do you see that?
19 A. Yes.
20 Q. And, likewise, in the very next paragraph of your
21 affidavit, you refer to the notice of default as an existential
22 threat. Do you see that?
23 A. I see it.
24 Q. But it was your view, was it not, sir, that the company
25 actually did not need to do the November transaction, right?

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1 A. The first transaction or the second transaction?
2 Q. The exchange. The November 6th transaction by which the
3 company diluted Aurelius and obtained a waiver of the
4 September 21 notice of default. It's your view that the
5 company did not need to do that transaction, correct?
6 A. They did not need to do that, no.
7 Q. OK. In fact, it's your view that if the November
8 transaction became too expensive for the company, Windstream
9 could just call the whole thing off and litigate with Aurelius?
10 A. Yes.
11 Q. And, in fact, as you say in paragraph 14 of your affidavit,
12 you understood that Windstream believed that it would prevail
13 in the litigation, right?
14 A. Yes.
15 Q. And that's why you told me that in your view the consent
16 solicitation was a nice to have, not a need to have, right?
18 Q. Sir, you never -- did you tell any bondholder about the
19 risk of a bankruptcy if the November transaction was not
20 successful, did you?
21 A. Every bondholder that I spoke to is a highly sophisticated
22 investor that --
23 Q. Sir, it was a yes-or-no question.
25 Q. Do you recall ever telling a Windstream bondholder about

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1 the risk of bankruptcy if the November transaction was not
2 successful?
3 A. Yes.
4 Q. Sorry. You do recall telling bondholders about of the risk
5 of bankruptcy if the November transaction was not successful?
6 A. Yes.
7 MR. TRUNK: Joe, let's take a look at page 259 of
8 Mr. Cheeseman's deposition.
9 Q. Sir, I asked you at your deposition, "In the course of your
10 negotiations with bondholders, did you ever say in words or
11 substance that if this transaction doesn't take place,
12 Windstream could end up in bankruptcy?" Do you see that?
13 A. Yes.
14 Q. And you responded how?
15 A. No. I think we said that if it doesn't work, there are
16 other options they would explore.
17 Q. OK. Sir, you never told bondholders, did you, that this
18 was a do-or-die scenario for Windstream?
19 THE COURT: Was there an objection?
20 MS. KARIS: That is improper impeachment. That
21 testimony is consistent --
22 THE COURT: All right. Overruled.
23 Q. Sir, you never told bondholders that this was a do-or-die
24 scenario for Windstream, did you?
25 A. No.

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I7pdusb1 Cheeseman - redirect
1 Q. And, in fact, as you say --
2 THE COURT: Excuse me. Mr. Cheeseman, you need to get
3 a little closer to the mic and speak up.
4 A. This wasn't do or die. There were other options they could
5 explore.
6 Q. And, in fact, you told me at your deposition that there
7 were a variety of other options, am I right?
8 A. Yes.
9 Q. OK.
10 MR. TRUNK: I pass the witness, your Honor.
11 THE COURT: All right. Redirect.
12 MS. KARIS: Sadly, I need to get my reading glasses.
13 REDIRECT EXAMINATION
14 BY MS. KARIS:
15 Q. Good morning, Mr. Cheeseman. I want follow up on some of
16 the questions that you were asked.
17 You were the person, you said, that determined the
18 exchange ratio for the deal that closed on November 7th of 2017
19 in connection with the new notes that were issued, correct?
20 A. Yes.
21 Q. At the time that you recommended to Windstream what amount
22 the exchange ratio should be, how many years of experience did
23 you have in pricing bonds?
24 A. 31.
25 Q. How many different bonds do you think you had priced in the

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1 course of the 31 years of experience that you had?
2 A. Hundreds -- a thousand.
3 Q. Now, you answered, in connection to some questions, that
4 you consulted with counsel. Do you recall those answers?
5 A. Yes.
6 Q. OK. We're going to talk about counsel that you consulted
7 with, but even independent of counsel, did you have a team at
8 Citi that was working with you and assisting you in pricing
9 this transaction?
10 A. The pricing was done by my group. The other parts of the
11 Citi team were the investment banking division and the lev fin
12 division. They oversaw, but the final decision was ours.
13 Q. What is the "lev fin" division?
14 A. Leverage finance.
15 Q. OK. Are you familiar with a document called a "Commitment
16 Committee Approval Memo"?
17 A. Yes.
18 MS. KARIS: If we could now pull up Exhibit 99,
19 please.
20 A. Where would that be?
21 Q. I'm not sure, actually, if it is in your binder. Actually,
22 it is in the front sleeve of your binder.
23 A. I've got it on the screen.
24 Q. Mr. Cheeseman, do you recognize this document?
25 And if we can go to the next page, please.

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1 A. Yes.
2 Q. Describe for us what this document is, dated
3 October 10th of 2017.
4 A. This is an internal document. When Citi presents a
5 transaction that it wants to execute on behalf of a client,
6 they have to go to a committee to review it and understand the
7 ramifications of the trade and try to -- and make sure it is
8 deemed to be fair in their minds and a transaction that Citi
9 wants its name on.
10 Q. And is this the committee memo that was prepared to go
11 internally at Citi to discuss the transaction that closed on
12 November 7th of 2017?
13 A. Yes.
14 Q. If we can turn to the next page, please.
15 Do you see at the bottom there, it says, "Deal Team?"
16 And if we can call that out, please.
17 A. Sure, deal team.
18 Q. That might be too much.
19 A. That is fine, I can see it.
20 Q. It is blurry. So are these the members from the Citi team
21 that worked on this transaction in various ways?
22 A. Yes.
23 Q. And how many different folks from Citi worked on pricing
24 this deal?
25 A. Three of the four in the liability management, two in lev

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1 fin syndicate, and maybe two in IB communications, but the
2 ultimate pricing was done by myself.
3 Q. OK. And collectively, does this deal team have experience
4 in issuing new bonds?
5 A. Yes.
6 Q. Would you consider this to be a very experienced team at
7 Citi?
8 A. Yes.
9 Q. Now, you referenced that there was counsel involved. And I
10 want to go, then, to the page ending 9 -- I'm sorry, page
11 number 9, page ending Bates number 680.
12 You indicated, in response to Mr. Trunk's questions,
13 that you cleared with legal whether or not these indentures
14 could be issued; do you recall that?
15 A. Yes.
16 Q. All right. The second bullet there indicates, under
17 "Internal Approvals Received," "We had a call on 10/5 with
18 Darryl Bridges (Citi internal legal), Howard Miller (business
19 selection), Mike Smolow (IRM), and Heidi Bioski, and we are
20 approved from their perspectives."
21 A. Yes.
22 Q. Did you consult with these internal folks, including legal
23 at Citi, with respect to the issuance of this Indenture?
24 A. No.
25 Q. Now, when you say you had a call, did you discuss the

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1 details of this deal with them?
2 A. Yes. Specifically the contentious nature of it, the
3 reopening of a security, and then the subsequent launching of
4 the consent solicitation on that.
5 Q. OK. And so you discussed the consent solicitation with
6 them?
7 A. Yes.
8 Q. All right. And then there is counsel listed there.
9 Kirkland & Ellis is Windstream and Davis Polk was Citi's
10 counsel. Again, all involved in these discussions?
11 A. Yes.
12 Q. Now, you indicated, in response to Mr. Trunk's question,
13 that you thought that the purpose of this new note was
14 partially to deal with the Aurelius default. Do you recall
15 that?
16 A. Yes.
17 Q. Why do you say it was partially to deal with the Aurelius
18 default?
19 A. The extension of maturities and the ability to push out in
20 lower interest rates for the company was a significant appeal
21 to create runway for Windstream.
22 Q. So from your perspective in pricing this deal, did you take
23 into account that this deal was going to extend maturities of
24 Windstream's debt?
25 A. Yes.

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1 Q. Did you achieve that objective by finalizing this
2 transaction?
3 A. Partially.
4 Q. And did you also achieve the other objective of addressing
5 the notice of default, as best you understood it?
6 A. Yes.
7 Q. Mr. Trunk asked you about your understanding of premium in
8 the Indenture. Do you recall that?
9 A. I do.
10 MS. KARIS: If we can pull up Exhibit 101, please.
11 That would be behind Tab 7. And if we can go to page 5.
12 Q. Mr. Cheeseman, this is titled, it says, "Transaction
13 Overview." Do you recognize this document?
14 A. I do.
15 Q. If we can go now to page 6, the next page.
16 There is an overview of the transaction, and about the
17 middle of the way through there are some columns. Let's start
18 with the column that says "Old Notes." Do you see that,
19 "Outstanding Amounts"?
20 A. Yes.
21 Q. All right. Walk us through what this document shows with
22 respect to the pricing or the exchange ratio that you set for
23 this transaction.
24 A. Sure. So the seven-and-a-halfs -- I'm on the first line --
25 due 6/01/22, is the coupon and the maturity of the old

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1 security. It has 441 million outstanding. The current market
2 trading price was 75 on a dollar price, which translates to a
3 15.21 percent yield. The consideration of secured and
4 unsecured was there are no secured notes. A hundred percent of
5 those notes that they were going to receive in the exchange
6 would have been unsecured notes.
7 Q. OK. So let me stop you.
8 For the '22s, they originally had a coupon rate of
9 7-and-a-half, is that correct?
10 A. Yes.
11 Q. And those were unsecured notes, correct?
12 A. Yes.
13 Q. OK. Keep going.
14 A. And the next is the exchange ratio.
15 MS. KARIS: If we can call them out as he is going
16 through them, if you wouldn't mind.
17 A. The exchange ratio for the '22s was a 108. So for every
18 thousand face amount you received a-thousand-80 of new bonds.
19 Q. OK. So for every hundred you get 108?
20 A. Correct.
21 Q. OK.
22 A. The secured notes field is left blank, but we were
23 considering the offering security at the time. Again, that
24 is -- so this proposal had not considered that.
25 Q. OK.

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1 A. And it's important to note the '22, '23 and '21s, there
2 wasn't enough security so we were giving the security to the
3 shortest maturity of seven-and-three-quarters of 20, which is
4 on the bottom, where we get a portion of secured notes or move
5 them into --
6 (Cell phone sounding)
7 A VOICE: Your Honor, I'm very sorry.
8 MS. KARIS: Every lawyer's nightmare.
9 (Pause)
10 We've all been there.
11 THE COURT: For the record, someone's phone went off.
12 I won't name the name on the record, although Mr. Godfrey may
13 have done that.
14 You can take steps to avoid that nightmare by shutting
15 off your phone, which is what the court standing rules require.
16 So, why don't you all take a moment and shut off your phones.
17 A. So, again, this --
18 THE COURT: Hold on. We need a moment for them to
19 shut off the their phones.
20 All right. Was there a question on the table?
21 BY MS. KARIS:
22 Q. We were walking through this, and you were talking about
23 the fact that you used secured debt for the shortest term
24 maturities?
25 A. Yes.

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1 Q. And was issuing secured debt part of the consideration of
2 this overall transaction?
3 A. Yes.
4 Q. Let me stop you there.
5 Why was issuing secured debt for the shortest term
6 maturities, which would have been the 2020s and 2021s at this
7 point, why was that contemplated?
8 A. So, in a cap structure was the shortest maturity always has
9 the fundamental belief that they are going to mature out first
10 and be able to have the company figure out a way, in general
11 terms, to get paid. And the secured -- the bonds for
12 Windstream traded very similar, where their '20s traded eight
13 to ten points higher than the longer maturity notes. So with
14 the fundamental belief that '20 comes first and I can mature
15 out and they'll figure out a way to get it done and pay me,
16 where a '23 note trades at the lower dollar price because in
17 order for me to mature, everybody has to get paid.
18 Q. OK.
19 A. So using the secured capacity for the shortest one is a way
20 to incentivize that bondholder that thinks they can mature out
21 to move into something that protects their principal by a
22 security.
23 Q. Was that part of the consideration that you gave to this
24 transaction when you were doing the pricing?
25 A. It was, but, again, they had limited capacity of secured

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1 such that we couldn't offer it to everyone.
2 Q. OK.
3 A. So this chart shows -- it combines all four bonds, so there
4 is a secured note line and then there is an unsecured note
5 line. So the top three securities here, the 6-3/8 and 23, the
6 new bond is a reopening of the existing 6-3/8 of August 23rd.
7 Q. OK. So let's keep working our way, then, through these
8 2022 notes that have seven-and-a-half interest --
9 seven-and-a-half percent interest coupon payments --
10 A. Mm-hmm.
11 Q. -- that you're proposing an exchange ratio of 108.
12 A. Yes.
13 Q. How do you get there? How do you get to the 108?
14 A. For somebody in '22 to want to take a higher coupon,
15 shorter maturity note and extend to a lower coupon due 8/1/23,
16 that we believe trades at a 75-and-a-half dollar price, the
17 value to move from something that matures in '21 or '22 to move
18 into something that matures in '23 would be in the back of the
19 maturity towers is a transaction that no one would do on a
20 par-for-par basis. As such, the exchange ratios, when we
21 multiply the 75 times 108, the exchange value, which is the
22 next column, 81.54, 80.03 and 83.05, is the premium that we
23 always call it as to what you have versus what you get.
24 Q. OK. I want to follow up on a couple of things.
25 You indicated there that no one would exchange on a

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1 par-for-par basis. Why do you say that?
2 A. Because you would have less coupon income, and you would
3 have more risk from a maturity perspective.
4 Q. So by "par-for-par" you mean a hundred dollars in notes for
5 another hundred dollars in notes, correct?
6 A. Yes.
7 Q. And so if a bondholder is holding a '22 mature rate,
8 7-and-a-half percent coupon and you're offering 6.375, in your
9 judgment, you didn't think par-for-par was an option, is that
10 correct?
11 A. Correct.
12 Q. We don't have to go through all of these, but let me ask
13 you this: For the '21, '22 and April '23 notes that were
14 exchanging or offered, at least, to exchange into the
15 August 2023 notes, was it the case that all of them previously
16 had higher coupon rates than what was being offered?
17 A. Yes.
18 Q. And was it also the case that they previously had shorter
19 term maturity than what was -- what they were currently trading
20 into?
21 A. Yes.
22 Q. Did you discuss with investors their desires or preferences
23 for taking lower rates, exchange ratios, in connection with
24 this transaction?
25 MR. TRUNK: Your Honor, I'm going to object. This is

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1 getting pretty far afield from the scope of cross-examination.
2 MS. KARIS: It goes to the premium, question, your
3 Honor, that Mr. Trunk asked.
4 THE COURT: I agree, and I think it is helpful in any
5 event so I will allow it.
6 MS. KARIS: Thank you.
7 THE WITNESS: Could you repeat the question?
8 MS. KARIS: Sure.
9 (Continued on next page)
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

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I7PAUSB2ps Cheeseman - Redirect
1 BY MRS. KARIS:
2 Q. Did you discuss with investors the issue of whether they
3 were willing to take a lower premium, as you called it, or
4 lower rate in connection with this exchange?
5 A. Yes. We, NDA'd ten accounts approximately that were in
6 excess of 60 percent of each security.
7 Q. Let me stop there. What's an NDA?
8 A. Nondisclosure agreement. They basically went on a
9 confidential basis and they restricted themselves from trading.
10 Q. And that was with ten investors?
11 A. Approximately.
12 Q. Describe the sophistication of these investors that you
13 were speaking to on a confidential basis to assess their
14 appetite, if you will, for a different exchange rate.
15 A. Highly sophisticated investors.
16 Q. Can you name a couple for us?
17 A. WAMCO, JPMorgan Asset Management, BlackRock, Loomis, WAMCO.
18 Q. OK. So as sophisticated investors, you're having
19 discussions. And what do you learn as a result of these NDA
20 discussions about pricing the premium, if you will, or the
21 exchange ratio?
22 A. They wanted more, in both exchange ratio or coupon. And
23 there was very little that got accomplished over a
24 week-and-a-half period with the bondholders. And we then, at
25 that point, decided when the NDAs were expiring that we had had

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1 to cleanse or launch the transaction. So we opted to launch
2 the transaction, as a cleansing, to launch the exchange as best
3 or as close to some of the requests they had, but there were
4 not all of those requests.
5 Q. Let's break that up. First of all, when you say that they
6 wanted more, they wanted more of what?
7 A. They wanted exchange ratios higher than what is on the
8 page. So 108, they want 110. Or they wanted, some people
9 wanted 112. You could -- some people wanted a coupon bump.
10 Some people wanted a cash payment. There was a variety of
11 different -- others wanted significantly more restrictive
12 covenants.
13 Q. So was this a negotiated transaction from a perspective of
14 getting feedback from the marketplace?
15 A. Yes.
16 Q. OK. And you indicated that at the end of the transaction,
17 at the end of the NDA period, the ten-day period, very little
18 was accomplished. What do you mean by that?
19 A. There were ten different investors that owned a variety --
20 different series of bonds, and each -- all four series -- the
21 '20s were in the conversation as well -- and there was -- an
22 investor that's all on short maturity would want secured paper.
23 There's an investor that's in the '22s that might want a
24 different ratio. There was an investor in the '21s that wanted
25 a covenant. And there was really, there wasn't a consensus as

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1 to what they deemed to be universally agreeable. And we
2 accomplished very little. But we listened and did our best to
3 take in the information they give us, to try to come up with
4 the best-fit offer for all.
5 Q. At the end of your discussions with ten sophisticated
6 investors, did you then recommend a coupon rate, or an exchange
7 ratio, if you will, for this transaction?
8 A. Yes.
9 Q. Did any of the investors indicate to you -- I asked you
10 whether they would be willing to take par. You said no. I'm
11 correct?
12 A. Yes.
13 Q. Did any of them indicate to you that they would have been
14 willing to take the call price, which was at 102 or 103, at
15 that time?
16 A. I wouldn't propose it, because I would be laughed out of
17 the room.
18 Q. Why do you say you would be laughed out of the room if you
19 proposed the call price?
20 A. Because if you take a short maturity, 7 3/4 of '21 and ask
21 them to, at the call price, exchange into a bond that trades
22 below it on the price and take additional risk, to go out to
23 '23, bondholders will immediately reject it, at that exchange
24 ratio, because the concept of what you have versus what you
25 get, which is what bondholders look at, meaning if I have a

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1 bond that trades at a $76 price today and I exchange it for a
2 bond that is on a par-for-par basis, 75, I lose money. If I
3 exchange it, in this example here, at a 110 exchange ratio, the
4 market exchange value is 83, so if I turn around and sell 110
5 of the 6 3/8 immediately in the market at 75, I would achieve
6 83 cents of value, where I started the day at 76 of value.
7 So the exchange to go out -- the premium is defined as
8 three things here in my mind. The first is the difference in
9 coupon. The second is the extension of maturity. And then the
10 third is an incentive.
11 Q. And is that incentive what you on the slide call "an
12 investor pickup"?
13 A. The incentive is all three of those. So you could -- we
14 could -- so there was concepts of cash. The way we marketed
15 was, if you just get a par-for-par exchange and sold the above-
16 par amount, 10 points, you can achieve your cash payment, if
17 somebody wanted a cash payment. But the exchange ratio, which
18 I think is important to note, there was no money coming into
19 the company. The 40 million that's referred to is 40 million
20 of premium at best trading at 75 cents on the dollar, which is,
21 from a refinancing perspective, a -- wasn't 40 million. They
22 didn't get 40 million of cash in their pocket.
23 Q. Stop there. You say the 40 million was not really premium;
24 it wasn't new cash coming into the company. Explain, from an
25 investment banker standpoint, why that is.

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1 A. So if a company were to do a new issue and they were to go
2 into the market through the syndicate desks and issue the 10 --
3 or the exchange ratio above par, that would be done in one of
4 two ways. It would be done on a receive-new-cash basis, or if
5 they issued this 6 3/8, it would be issued on an OID basis,
6 meaning original issue discount, because investors wouldn't
7 give you par for 6 3/8 at 23. At best they would give you
8 where we deemed the market price at 75.
9 So the most money that they could have raised was,
10 again, it wasn't -- they didn't receive any proceeds back. So
11 the exchange allowed them to be compensated for the difference
12 in coupon, the difference in maturity extension, and a value to
13 go -- to do it, and not just want to be the person to sit with
14 the '21 maturity or the '20 maturity and try to mature out
15 right away.
16 Q. When Mr. Trunk asked you if it was the case that you
17 previously said the premium was close to nothing -- do you
18 recall that on the testimony?
19 A. Yes.
20 Q. Why do you say the premium was close to nothing, in
21 connection with this transaction?
22 A. So the exchange ratio was based on three components: coupon
23 differential, maturity extension, and incentive. And it's hard
24 to say -- the coupon differential is -- you can figure out the
25 difference in the coupon. The maturity extension is much more

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1 ambiguous. And then the incentive is, again, based on your
2 value of the -- can vary because there is only -- so if you
3 were taking a 110 exchange ratio and say 6 points of that was
4 coupon, well now you have to decide what is incentive payment
5 and what is maturity extension. Most of the premiums, in our
6 minds, was maturity extension. So when the statement is made
7 that there was very little premium to move out, I believe
8 there's some, but, again, to define it with precision is,
9 again, hard to do.
10 THE COURT: As part of this transaction, there was
11 also a consent payment included, correct?
12 THE WITNESS: So as part of the transaction, there was
13 a consent payment on all of the old notes.
14 THE COURT: Can you just explain what that is and how
15 it relates to the premium that you're describing, if at all.
16 THE WITNESS: We added in the consent payment that
17 they would consent on, on their -- so first there's a consent
18 for their old notes, and then they would exchange. And after
19 the exchange they would have the option but not the obligation
20 to consent on the new 6 3/8. Some investors opted to take the
21 consent payment. Others opted not to. Most of them opted to
22 take the consent payment. But there were a handful of
23 bondholders that chose not to take the consent payment, that
24 did the exchange on its own.
25 THE COURT: So the consent payment was consideration

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1 for consent.
2 THE WITNESS: After you exchange.
3 THE COURT: All right. And that's separate from the
4 premium that you're describing for the exchange itself.
5 THE WITNESS: Correct. So this page that we have here
6 is that if you're going to exchange your old notes, you would
7 take your quarter point on the old notes and get a consent,
8 because now you're moving into 6 3/8, and, the 6 3/8, you would
9 have the option but not the obligation to consent to the new
10 notes.
11 THE COURT: But the "investor pickup" column there,
12 what is that a reference to?
13 THE WITNESS: So the investor pickup is, if I --
14 choice A is, I sell my bond in the market and I receive the
15 current market price. Choice B is, I exchange it to new 6 3/8
16 and then immediately sell those at a price of 75.50, but I have
17 more principal. So what you have is, where it's 76, what you
18 exchanged is worth -- again I'm reading the 7 3/4 at '21 -- 83,
19 the investor pickup on that was 70.3, where if you look at the
20 top one, 7 1/2 for '22, their bond is worth 75 on the market,
21 exchanging it at 81.54. Again it's a grossed-up principal.
22 Taking that larger principal and selling it at a 75 1/2 dollar
23 price yields you 6.8 percent of value. So from what you have
24 versus what you would get, if you were to unwind the entire
25 position, the investor pickup is the last column on the right.

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1 THE COURT: I think part of my problem was that that
2 last column was cut off on my screen. But now I see it. And
3 the unsecured versus the cash columns, what do those reference?
4 THE WITNESS: So the unsecureds was, we had a limited
5 amount of secured capacity that we could provide to these
6 investors. As such, applying the secured capacity to the '20s
7 such that -- because that's the shortest maturity and it's the
8 most important to move out, we gave the value of that to the --
9 to the -- we were contem -- this wasn't the transaction that
10 ultimately launched, but this was, in our commitment committee,
11 the idea was to offer it all to the 7 3/4 at '20 to get them to
12 move into a better place in the cap structure and a longer
13 maturity, the longer maturity.
14 THE COURT: But the cash component versus the secured
15 or unsecured columns, what does that reference?
16 THE WITNESS: There was no cash components.
17 THE COURT: But in the investor pickup --
18 THE WITNESS: In the investor pickup, again, if you
19 took the paper that you have and sold it, or you exchanged and
20 take the paper that you receive and sell it, the net difference
21 is the cash amount that you -- you would receive a quarter
22 point in cash for the consent, but the unsecured pickup is
23 value-to-value in secondary market trading of participating in
24 this exchange and what you'd get.
25 THE COURT: All right.

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1 BY MRS. KARIS:
2 Q. Just to make sure, to clarify any confusion, the
3 "unsecured" column, that represents the value-for-value
4 exchange, if I heard you correctly.
5 A. Yes.
6 Q. And then the cash component, once you elected to consent,
7 there was a consent payment associated with that, correct?
8 A. Well, what we, we, we deemed that the cash component was on
9 the old notes, so that there was a separate transaction going
10 on, so that you, if you were going to exchange, you'd consent
11 on the old notes. However, you had the ability to -- you had
12 the ability to consent or not in the subsequent transaction of
13 the 6 3/8 consent solicitation.
14 Q. And so when you set the investor pickup, or when you
15 landed, if you will, on the exchange ratio, did you take into
16 account the fact that bondholders were both taking on a lower
17 coupon rate and a further maturity date?
18 A. Yes.
19 Q. And did you also take into account the feedback that you
20 were getting from the marketplace with respect to their
21 interest, or appetite, if you will, for par-for-par exchange or
22 a call-price exchange?
23 A. I think it's important to note that 65 percent of the
24 investors didn't do the trade. Only 35 percent did. So the
25 group of ten, only two investors participated. And that was

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1 because they were just in the '20s. But when we did the --
2 when we launched the transaction, the transaction goal was to
3 try to get all 2 billion to move.
4 Q. Let me stop you this.
5 Go ahead?
6 THE COURT: There are a lot of numbers in the record
7 here. But I have a recollection of reading somewhere that 61
8 percent of noteholders exchanged. Is that wrong?
9 THE WITNESS: I might have -- it could be 61, 60 -- in
10 the 60s, low 60s.
11 THE COURT: I thought you just testified that only 35
12 percent exchanged.
13 THE WITNESS: 35 exchanged. 65 rejected.
14 So we went to, if we went to a hundred investors, 65
15 said no, 35 said yes and exchanged into the 6 3/8.
16 THE COURT: Right. But what I remember reading
17 somewhere, and I don't remember where, is that 61 percent
18 exchanged. Isn't that the opposite?
19 It could be confusing.
20 MRS. KARIS: Your Honor, I may be able to clarify
21 this.
23 BY MRS. KARIS:
24 Q. In each of the coupon years --
25 THE COURT: You're not testifying.

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1 MRS. KARIS: No, I'm going to ask. I'm sorry.
2 Q. Mr. Cheeseman --
3 MR. GODFREY: Fair enough. I meant by asking a couple
4 of followup questions.
5 Q. There were '21, '22, and '23 coupons that were exchanged,
6 correct? -- I mean, not coupons -- notes that were exchanged,
7 correct?
8 A. Yes.
9 Q. And for each of the notes, was there a different
10 participation rate, that is, the number of investors that
11 elected to take the deal?
12 A. Yes.
13 Q. And do you recall whether the 2021s had a lower
14 participation rate than the 2023s, for example?
15 A. Yes.
16 Q. And similarly, did the 2022s have a lower participation
17 rate than the 2023s?
18 A. Yes.
19 Q. The April 2023s, did they have the highest participation
20 rate of the different notes that were being offered to be
21 exchanged?
22 A. Yes.
23 Q. Which year transaction -- which notes closed as part of the
24 November 7th exchange into the April -- into the August 2023
25 notes?

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1 A. Any -- all three -- all four series that participated.
2 Q. And did they each close at different participation rates?
3 A. Yes.
4 Q. So when you're talking about the 60 percent or the Court is
5 talking about the 60 percent, do you know which year had a 60
6 percent participation rate, as opposed to which year had a
7 30-plus percent participation rate?
8 A. The participation was in maturity order, with the '21s
9 being the lowest, '22s, and '23s.
10 Q. Now, you indicated that the participation rate told you
11 something about the pricing, I believe you said. Correct?
12 A. Yes.
13 Q. What relevance did the participation rate, whatever those
14 numbers are -- we'll get them in the record -- what relevance
15 did those participation rates have to you in terms of helping
16 you decide whether the exchange ratio that you set was
17 appropriate?
18 A. The fact that a large group of investors rejected the
19 exchange said that the value, which is for the premium, best
20 pickup, all of those, was insufficient for them to participate.
21 Q. So the value or the exchange ratio that you set, did that
22 indicate that investors were not indifferent to exchanging
23 their current notes for the new notes?
24 A. Yes.
25 Q. A couple more questions on the exchange ratio and then we

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1 can move on. Did you consider historical rates when you were
2 determining what the exchange ratio should be?
3 A. Yes.
4 Q. What significance did historical rates have to you when you
5 were setting these exchange ratios?
6 A. So historically we look at two components, first is the
7 investor pickup, and see what the range is when we compare it
8 to other exchange offers that have had similar success. And
9 the historical ranges is anywhere from certain transactions at
10 3 to 5 or 5 to 8 points, but I'd say the range is anywhere from
11 3 to 8. So we felt that the investor pickup at anywhere from 6
12 to 8 was historically good. The reason why the '20s was the
13 highest, bringing that average, was, again, we were -- we
14 wanted to see -- as part of the transaction maturity extension
15 it was important to move the '20s.
16 Q. In looking at the historical rates, did you look at rates
17 prior to August 3rd of 2017, which is when the company
18 announced a dividend suspension?
19 A. We did look at market prices as to where the bonds were.
20 Q. Why did you look at bond prices before August 3rd?
21 A. There were two events after August 3rd, the first being a
22 dividend suspension and the second a notice of default. And we
23 wanted to understand where the cap structure traded before
24 those two events and see where, if we were able to improve the
25 cap structure by putting out maturities and eliminate the

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1 notice of default, where the investors believe the cap
2 structure could return back to over time.
3 (Pause)
4 A. Trading prices that they could return back to over time.
5 Q. Of what significance was eliminating the notice of default
6 risk, in terms of pricing these bonds?
7 A. It was significant.
8 Q. Mr. Cheeseman, in determining what the investor pickup rate
9 would be, did you consider various other coupon rates and
10 maturities? Let's start with coupon rates.
11 A. We did.
12 Q. Tell us what consideration you gave to other coupon rates
13 and why you did not propose those.
14 A. If we were to propose a different maturity and different
15 coupons, there would be no benchmark as to what the value of
16 that coupon is. It would be a subjective view. So if you
17 launch something and we said, let's give you a ten-year 8
18 percent coupon, well, where is that trading? It's speculation.
19 The nice part of the exchange that we took interest in was the
20 6 3/8 of '23, already had a trading level. That had an
21 established market price. So when you want to think about the
22 variables to the equation, you have an old security that has a
23 market price, you have a new security that has a market price,
24 so then the question becomes, what ratio is it to put them
25 into? If you have a different security, again, we said let's

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1 put you into a ten-year. Instead of it being a one-variable
2 equation, it would be a two-variable equation, because now you
3 have an exchange ratio and you have a new value of security.
4 So eliminating one of those variables and reopening the 6 3/8
5 was considered to be a better option.
6 Q. You told us at the beginning that there was a dual purpose
7 to this. One was to extend maturity and the other was to
8 address the notice of default. Do you recall that?
9 A. Yes.
10 Q. Did the exchange into the August of 2023 notes allow you --
11 was that the only note that would allow you, if you will, to
12 serve both of those purposes?
13 A. Yes.
14 THE COURT: While you're looking for your next
15 question, can I ask a question?
16 MRS. KARIS: Absolutely, your Honor.
17 THE COURT: All right. Going back to the historical-
18 rate question, you testified in your direct, that is, in your
19 affidavit, that your understanding was that Aurelius had
20 acquired a large position in credit default swaps; is that
21 correct?
22 THE WITNESS: Yes.
23 THE COURT: Did that factor into your consideration of
24 the historical rates in any way, and if so how?
25 THE WITNESS: So that --

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1 THE COURT: That is to say, historical rates in bond
2 pricing, to the extent that you were looking at the periods
3 before August 3rd or after August 3rd, what role if any did
4 your understanding about Aurelius's position play in that?
5 THE WITNESS: So it was my belief and the belief from
6 talking to a number of people in the market that when the
7 dividend was -- ceased on August 3rd, that the bonds started to
8 trade off, and that there was -- as they traded down, that they
9 were being acquired.
10 THE COURT: By "traded down," you mean the price --
11 THE WITNESS: The prices were trading down, they were
12 being acquired, particularly the one series, the 6 3/8. And
13 after that position was acquired and potentially others were
14 shorted in the market, we believe that there were shorts in
15 other series, so they went long 6 3/8 and short other series of
16 notes, in particular the '20s, because that was the one that
17 would drop the highest.
18 Then there was, in the market, a significant amount of
19 activity in CDS of one dealer, Barclays, that did a number of
20 transactions where they brought short-term CDS, and then
21 subsequently, immediately after, there was a notice of default
22 put in after that.
23 THE COURT: So that's after the August 3rd
24 announcement about the dividends?
25 THE WITNESS: After the August 3rd, approximately a

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1 month later, all those transactions.
2 THE COURT: What role if any did that understanding of
3 the market activity play in your assessment of the historical
4 rates?
5 THE WITNESS: So the feedback overwhelming from any
6 bondholder that was net long, meaning that does not have a CDS
7 position, which was the group of ten when we started the
8 process that owned well over a majority of every bond except
9 for the 6 3/8, was, what can we do to help. We do not want an
10 event of default. And that they wanted us to -- they offered
11 their help, universally, every net long bondholder.
12 THE COURT: All right. I guess maybe my question
13 isn't clear enough, but my question is, did you factor into
14 your consideration of the bond pricing historically your
15 understanding of the market activity and whether the bonds were
16 being shorted in any significant way by Aurelius or any other
17 investor?
18 THE WITNESS: Yes. We factored into our analysis that
19 if the exchange were to occur and the notice of default were to
20 be eliminated, that there would be a boost to the trading
21 levels, because of the elimination of the notes, the default
22 would be taken into account, and that bond prices would return
23 back to earlier August levels.
24 THE COURT: All right. But that's a slightly
25 different question. My question is does -- and maybe I'm

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1 missing something myself -- but am I right that if the market
2 understood that there was some investor acquiring a large short
3 position in the bonds, that that might have an effect on the
4 price of the bonds? Is that a fair assumption?
5 THE WITNESS: Yes.
6 THE COURT: And to the extent that you learned or
7 understood or believed that Aurelius or someone else was
8 acquiring a large short position in the bonds, did that affect
9 or play any role in your fixing of the exchange ratio, your
10 understanding of the historical pricing and fixing of the
11 exchange ratio?
13 THE COURT: Explain to me how.
14 THE WITNESS: The people that, for -- the people who
15 have their short positions credited, they're selling net long.
16 So the net long position that's on the other side of that trade
17 does not want to see an event of default. As such, the ability
18 for them to give us a consent for a very de minimis fee went
19 into the pricing that, if the notice of default was eliminated
20 and eliminated on all of the bonds, that it can't happen again
21 on, besides the 6 3/8, that the capital structure would trade
22 up now as a result of not having a default in all -- in the
23 whole cap structure.
24 THE COURT: All right. Carry on.
25 MRS. KARIS: Thank you.

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1 Q. Mr. Cheeseman, I will only follow up on a couple questions
2 as to what you just answered. First of all, did you become
3 aware, when you became involved in the transaction, that
4 Aurelius had been, or at least was rumored to have been,
5 acquiring CDS positions in the market in connection with these
6 notes?
7 A. Yes.
8 Q. And did you take that into account in setting the prices
9 for these bonds?
10 A. Yes.
11 Q. And in your conversing with investors in the marketplace,
12 were they too aware that there was some activity taking place
13 in connection with the August 2023 notes?
14 A. Yes.
15 Q. And when you priced these bonds, did you account for the
16 fact that the investor community was aware that Aurelius had
17 been acquiring CDS positions in the bonds?
18 A. Yes.
19 Q. Did you also become aware that, when you were pricing these
20 bonds, Aurelius was not only on the one hand acquiring CDS
21 positions, but they were also purchasing additional new bonds,
22 in the 2023s?
23 A. Yes. And they were also shorting Uniti stock, I believe,
24 as well.
25 Q. They were what?

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1 A. Shorting stock of Uniti.
2 Q. So on the one hand Aurelius is purchasing 2023 bonds that
3 it claims are in default of that indenture. Correct?
4 A. Correct.
5 Q. And on the other hand they're buying CDS positions.
6 A. Yes.
7 Q. And was the marketplace aware of this short and long
8 position that Aurelius was holding in these bonds?
9 MR. TRUNK: Objection, your Honor.
10 THE COURT: Just, I want to know what your
11 understanding was of the market's awareness of that and --
12 well, you can answer that.
13 THE WITNESS: My understanding, that there was a
14 fundamental awareness from every bondholder that I spoke with
15 that this is a one-investor structured trade that combined
16 purchasing a majority of bonds, owning a CDS position, having a
17 stock position, a short stock position, and then, when put
18 together, put a notice of default in, so you trigger the CDS to
19 pay them par in securities that they bought below market.
20 Q. Did you take that into account in determining an exchange
21 ratio, or a reasonable investor pickup?
22 A. Yes.
23 Q. I want to go back just real quickly to the participation
24 rates to see if we can clarify the record here. Exhibit 82.
25 THE COURT: Windstream?

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1 MRS. KARIS: I'm sorry. Apologies. Yes. Windstream
2 Exhibit 82, please.
3 Q. This is the November 7, 2017 consent/exchange and bond
4 offering update. Do you recognize this document,
5 Mr. Cheeseman?
6 A. I do.
7 Q. And is this the document that summarized the transaction
8 that closed and finalized on November 7th of 2017?
9 A. I only have the cover page, but I believe it does.
10 Q. If we can go to page 2, please. Right at the top,
11 "Transaction Update," "We received a majority approval for the
12 consent solicitations on the 7 1/2 notes due 2020, the 7 1/2
13 notes due 2023, and the 6.375 percent notes due 2023." Do you
14 see that?
15 A. I do.
16 Q. And it goes on to say "latest results of consent
17 solicitation." Do you see that?
18 A. I do.
19 Q. And in the far left column, each of the notes are listed,
20 the 2020, '21, '22, April '23, and then August '23 old notes.
21 Correct?
22 A. Yes.
23 Q. And those were all the notes that were the subject of the
24 transaction that closed on November 7th of 2017. Correct?
25 A. Yes.

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1 Q. And then it has a pre-exchange principal O/S. Do you see
2 that?
3 A. I do.
4 Q. And do you know what the "O/S" stands for?
5 A. "Outstanding."
6 Q. So then further down, it has the amount as of 11/6, and
7 then the percent of principal outstanding, again as of November
8 6. Do you see that?
9 A. Yes.
10 Q. And in each of those columns, does it indicate what the
11 pre-exchange principal outstanding amount was and then what the
12 principal outstanding amount was as of November 6th of 2017?
13 A. Yes.
14 Q. And it's got the percentage, then, of that principal
15 amount?
16 A. Yes.
17 Q. And you see down below where it says "6.375 percent senior
18 notes due 2023 (post-exchange)"?
19 A. Yes.
20 Q. What is your understanding of what that represents?
21 A. So the exchange offer has all '21, '22, and '23s, the
22 7 3/4, 7 1/2s respectively, now exchanging into the new 6 3/8
23 security. So the new 6 3/8 security that was 586 million is no
24 longer 586 million; it is post-exchange 1.139 billion
25 outstanding.

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1 Q. And do you see at the far right-hand column where it's got
2 61.4 percent?
3 A. Yes.
4 Q. Does that indicate, then, what the percentage of
5 participation overall for the old outstanding notes to the new
6 outstanding notes was, for consent into those notes?
7 A. Yes.
8 Q. From this chart, then, can you tell us what percentage of
9 old notes exchanged into the new 6 3/8 percent notes?
10 A. No.
11 Q. Exchanged and consented. Does that --
12 A. You can see line by line as to -- you can see the amounts
13 outstanding, but it doesn't show you the amounts that did.
14 Q. But if you wanted to calculate, if you will, the percentage
15 of participation, you would take the old amount to the new
16 amount, and that would indicate to you how many participated.
17 A. Yes.
18 THE COURT: Ms. Karis, we're going to take our morning
19 break very shortly, so if there's a natural breaking point --
20 MRS. KARIS: This would be perfect, your Honor.
21 THE COURT: All right. So it's 11:13. Let's take a
22 ten-minute break. We'll pick up again at 11:23. I will see
23 you then. Thanks.
24 (Recess)
25 THE COURT: Mr. Cheeseman, you remain under oath.

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1 And Ms. Karis, you may continue.
2 MRS. KARIS: Thank you, your Honor.
3 Q. Mr. Cheeseman, before the break we were talking about
4 participation rates. I want to ask you one question. Did the
5 maturity of those who exchanged into the new August 2023 notes
6 consent to the consent solicitation?
7 A. Yes.
8 Q. And do you recall whether the number of those who exchanged
9 into the August 2023 notes, that maturity that you identified,
10 whether that was 61 percent who consented subsequently?
11 A. It was higher.
12 Q. Now, you testified earlier that you did not -- I'm sorry.
13 You were asked questions earlier about whether one of the
14 options that was considered early on was paying cash as part of
15 this transaction. Do you recall that?
16 A. Yes.
17 Q. Did you come to form your own view as to whether it was
18 advisable to use cash as part of this transaction?
19 A. Yes.
20 Q. What view did you form?
21 A. Cash is easier because it's fungible immediately, but we
22 were told cash is not an option by the company and come up with
23 a solution that is a noncash solution.
24 Q. And you were asked about a presentation early on that had a
25 five-point cash component. Do you remember that?

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1 A. Yes.
2 Q. And I believe you said that was a JPMorgan original
3 presentation, correct?
4 A. Correct.
5 MR. TRUNK: Your Honor, I never went over this
6 document with the witness.
7 THE COURT: Mr. Trunk, you have to speak into the
8 microphone. But the objection is sustained.
9 Q. Did you ever independently assess whether cash was an
10 option, whether it was available or advisable to use cash?
11 A. No.
12 Q. Now, after the exchange ratio was set and the new notes
13 were issued, did you remain involved in setting pricing for a
14 subsequent transaction?
15 A. Yes.
16 Q. And did you apply the same experience and method, if you
17 will, to setting the subsequent exchange ratio?
18 A. Yes.
19 Q. There was -- different topic. There was a discussion about
20 the consent solicitation process that you talked about earlier.
21 Do you recall that?
22 A. Yes.
23 Q. And in your affidavit, at paragraphs 58 through 63, you
24 reference the process that was involved as part of this consent
25 solicitation, including the issuance of an offering memorandum.

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2 A. Yes.
3 Q. Now, had you had prior experience in dealing with offering
4 memorandums as part of issuing new notes or bonds?
5 A. Limited.
6 Q. OK. And did you review the offering memorandums, then,
7 that were associated with this transaction that you reference
8 in your affidavit?
9 A. The offer-to-exchange document, if you're referring to
10 that, versus after the notes are issued -- I'm trying to
11 understand the difference.
12 Q. I'm sorry. The offer to exchange.
13 A. The offer to exchange.
14 Q. Yes.
15 A. Yes.
16 Q. And if we can pull up exhibit 111, please. If we can go to
17 page 498.
18 MR. TRUNK: Objection, your Honor. We covered none of
19 this on cross.
20 THE COURT: That seems right to me, Ms. Karis. How is
21 this not beyond the scope?
22 MRS. KARIS: Very well. We'll leave what's in
23 Mr. Cheeseman's affidavit, your Honor. I was going to clarify
24 something that became an issue, but it's addressed in
25 Mr. Cheeseman's affidavit with respect to the minimum issuance

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1 condition.
2 THE COURT: All right. Let's leave it there.
3 MRS. KARIS: OK.
4 Q. Mr. Cheeseman, from your perspective in pricing this deal,
5 did you think that you paid an excessive premium in connection
6 with setting the exchange ratio?
7 A. No.
8 MR. TRUNK: Objection, your Honor, leading.
10 Q. Could you describe for us what your view, based on your 31
11 years of experience, was with respect to the exchange ratio
12 that was set, based on your interaction with the marketplace
13 and your knowledge of the history of these bonds.
14 A. The exchange had two goals. One is to extend maturities.
15 The second was to eliminate the notice of default via consent.
16 The extension of maturities, given that a significant amount of
17 bondholders didn't participate, was disappointing. But the
18 ability to achieve the second, which is to get an amount that
19 allowed us to achieve a consent post, on the security, was
20 achieved.
21 THE COURT: I think the question, though, was, based
22 on your experience and your interactions with the market, what
23 was your view about the exchange ratio that was used?
24 THE WITNESS: It was fair, and it was put at a level
25 that was not going to be at the whim of other bondholders that

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1 thought they could get more value because the company was in a
2 situation that -- that they had a notice of default and not be
3 taken advantage of. So I thought the exchange ratio that was
4 used was appropriate and fair.
5 THE COURT: And a moment ago you said there was a,
6 from the perspective of the goal of extending the maturities on
7 the company's bonds, the results were disappointing. In your
8 view, just solely from that standpoint, your view is it would
9 have been preferable for more bondholders to exchange than did?
10 Is that correct?
12 THE COURT: OK.
13 BY MRS. KARIS:
14 Q. One last document, Mr. Cheeseman, on this point. If we can
15 go to Exhibit WIN 108. Do you recognize this document,
16 WIN 108?
17 A. Yes.
18 Q. This is a memo from Jesse Davis to Mr. Gunderman, Christie
19 Grumbos, Nick Filippelli, yourself, and Matthew O'Sullivan. Do
20 you see that?
21 A. Yes.
22 Q. And it's dated October 18th, correct?
23 A. Yes.
24 Q. Is that the date the announcement was made of this
25 amendment and exchange offer?

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1 A. Yes.
2 Q. And was Mr. Davis, Mr. Filippelli, Mr. O'Sullivan, were
3 they your colleagues who worked on this deal?
4 A. Yes.
5 Q. Mr. Davis writes and he says, "Bob, I was too conservative
6 in our discussion this morning on the amount of premium
7 negotiate changes that is allocated to the coupon benefit of
8 WIN." And then he identifies those exchange premiums. Do you
9 see that?
10 A. Yes.
11 Q. What was your understanding of what Mr. Davis was saying
12 when he said that he was too conservative on the amount of
13 premium in the exchanges?
14 A. That he's the investment banker and he talks about
15 liability management when he should be letting me do that.
16 Q. OK. Fair enough.
17 Were there others on your team who thought that the
18 rate was even set too conservative, that is, low?
19 MR. TRUNK: Objection, hearsay.
21 MRS. KARIS: With that I have no further questions.
22 Mr. Davis will now know how you feel. Thank you.
23 THE WITNESS: He does.
24 THE COURT: All right. Any recross?
25 MR. TRUNK: Just one brief line of recross, your

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I7PAUSB2ps
1 Honor.
2 RECROSS EXAMINATION
3 BY MR. TRUNK:
4 Q. Mr. Cheeseman, you and Ms. Karis used the word "premium" a
5 few times, in I think maybe even a few different ways. So I
6 want to make something absolutely clear. In your mind, very
7 little of the exchange ratio constituted a premium, correct?
8 A. Correct.
9 Q. And in fact you told me that in your mind it was close to
10 nothing, if anything. Correct?
11 A. Correct.
12 Q. And to be very clear, tendering bondholders did not receive
13 values in excess of par in connection with the exchange,
14 correct?
15 A. Correct.
16 MR. TRUNK: That's all I have.
17 THE COURT: All right. Mr. Cheeseman, you may step
18 down. Thank you. You are excused and free to go, as far as
19 I'm concerned.
20 (Witness excused)
21 THE COURT: Next witness.
22 Dr. Sabry? Is that correct?
23 MRS. KARIS: That is correct.
24 THE COURT: All right. Do counsel want to retrieve
25 Mr. Cheeseman's binders. And if you have Dr. Sabry's binders

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I7PAUSB2ps
1 up there, that would be great.
2 MR. LERMAN: Your Honor, Dan Lerman for Aurelius.
3 I have one brief matter to bring to the Court's
4 attention before Dr. Sabry takes the stand.
5 THE COURT: OK.
6 MR. LERMAN: This is something that, in my
7 understanding, the parties have reached agreement on, but on
8 July 18, just a day before the pretrial conference, Dr. Kan
9 produced some additional data, statistical analysis. Dr. Sabry
10 has performed her own statistical analysis on this data, which
11 we turned over to the other side. We wanted Dr. Sabry to have
12 the opportunity to present that analysis briefly here today
13 during examination, and we explained to the other side that we
14 could do that either on direct or on redirect, after which they
15 could of course recross if they chose to do so. My
16 understanding is that they have agreed to permit Dr. Sabry to
17 be examined on this information, which pertains to the
18 so-called volume analysis that Dr. Kan performed on redirect.
19 I just wanted to bring that to the Court's attention
20 and seek leave for a short examination on this statistical
21 analysis, on the volume analysis of bond trading.
22 MR. MARKS: Your Honor, Aaron Marks for Services.
23 We're OK with that, provided of course that their objection to
24 Dr. Kan providing testimony on this volume analysis which they
25 have lodged is therefore waived.

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I7PAUSB2ps
1 THE COURT: Is that in the --
2 MR. MARKS: It's in the objections, your Honor, that
3 they filed.
4 MR. LERMAN: Your Honor, we're not prepared to waive
5 that objection. Just some of the chronology here is that, on
6 June 11th, just four days before the affidavits were due,
7 Dr. Kan produced what he called a supplemental report, which,
8 for the first time, contained a so-called volume analysis.
9 Subsequently, on June 13th, then on June 22nd --
10 THE COURT: Tell you what. I got it and understand
11 that. I'm not going to deem it a waiver for them to elicit
12 this testimony because I haven't yet ruled on that objection,
13 and so it's fair for them to hedge their bets by having
14 Dr. Sabry -- I apologize if my pronunciation is wrong --
15 respond to it, to make a complete record, so I can then decide
16 whether to overrule the objection or not.
17 So I will allow it. In terms of whether it's done as
18 a brief supplement to the direct testimony at the outset or on
19 redirect, I don't have a view. Whatever counsel think makes
20 more sense, I'm happy to defer to you. Obviously we'll give
21 Services an opportunity to cross on that as well. So it sounds
22 like redirect is the preferred approach?
23 MR. LERMAN: Yes, your Honor.
24 THE COURT: All right. So Dr. Sabry.
25 FATEN SABRY,

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I7PAUSB2ps Sabry - Direct
1 called as a witness by the defendant,
5 BY MR. LERMAN:
6 Q. Good morning, Dr. Sabry.
7 A. Good morning.
8 Q. Dr. Sabry, you have before you a large binder. I believe
9 the first half of the binder contains what is marked as Exhibit
10 AX 319. This is the copy of your direct-testimony affidavit
11 that you submitted in the case. Do you see that?
12 A. Yes, I do.
13 Q. Is this an authentic copy of your affidavit?
14 A. Yes, it is.
15 Q. Have you reviewed it since it was filed with this Court?
16 A. Yes, I have.
17 Q. Does anything need to be changed or updated in your
18 affidavit?
19 A. No.
20 MR. LERMAN: Your Honor, I would like to offer Exhibit
21 AX 319 into evidence.
22 THE COURT: All right. There are a number of
23 objections that have been lodged to this testimony. As
24 Services organized it, they sort of called it the three general
25 categories. Let me address them out of order.

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1 With respect to the second objection, which is
2 described as the so-called sword and shield objection or
3 problem, I overrule that category of objections. First, given
4 that Dr. Sabry herself did not get the data that Services is
5 discussing, I don't think there is any real argument that it's
6 being used as a sword and a shield. The parties, at least with
7 respect to Dr. Sabry, are playing on the same playing field on
8 that front. Second, as I indicated, I think, yesterday, I
9 looked back at the litigation surrounding these issues -- that
10 is to say, discovery with respect to Aurelius's trading
11 positions and trading history -- and as I said, Services did
12 not argue at the time that that discovery would be relevant for
13 the purpose that it now is asserted. Third, I wouldn't
14 characterize it as anemic, unanemic, or whatever Mr. Godfrey
15 said it was yesterday, but I do think that ultimately this goes
16 to the foundation of Dr. Sabry's opinions, and in that regard
17 is fodder for cross but it is not a basis for excluding her
18 testimony altogether or in any respect.
19 The third category is what I will describe as a
20 conduit objection, namely that Dr. Sabry is being used
21 improperly as a conduit for hearsay. Those objections are
22 overruled as well. If this were a jury trial, I think the
23 quantum of hearsay evidence in her direct testimony might be of
24 slightly more concern, but it's not a jury trial, and I think I
25 can make a proper assessment of that evidence. Some of it is

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1 not offered for the truth but for market reaction. Some of it
2 is cited as reliance materials, and that's a fair thing for an
3 expert to do. And regardless, I won't consider it for the
4 truth in any way that I would not be permitted to do.
5 That leaves the first category, which turns on what
6 was or wasn't contained in Dr. Sabry's expert report. My
7 problem there is that I don't have the expert report, and
8 therefore it's hard for me to make an assessment of whether or
9 to what extent these are new opinions. So I guess at the
10 outset, maybe if you could briefly respond, this is in
11 reference to paragraphs, I think, 135, note 85, and then
12 paragraphs 140 to 142 are the ones that in particular I'm not
13 in a great position to assess.
14 MR. LERMAN: Thank you, your Honor. These were all
15 disclosed. And to just take one example, one of the paragraphs
16 that they cite as undisclosed was paragraph 199. They quote
17 two sentences that they say reflect an opinion that was not
18 disclosed in either her report or her rebuttal report. The two
19 sentences they cite are taken verbatim from her rebuttal
20 report.
21 THE COURT: I didn't say paragraph 199.
22 MR. LERMAN: I'm sorry. Which -- you said -- so one
23 of them was 135, footnote 85?
24 THE COURT: The only ones that I -- all the objections
25 are overruled except that I'm not yet ruling on 135, footnote

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1 85; 140; 141; and 142. So if you can address those, I would
2 appreciate it.
3 MR. LERMAN: OK. If I could start with 135, footnote
4 85, this analysis is responsive to Dr. Kan's supplemental
5 report, which for the first time offered opinions about
6 purportedly high trading volume. Dr. Kan's supplement
7 attempted to tie the convergence to either increased trading
8 volume in June or purchases of the notes. Dr. Sabry's analysis
9 is responsive to that. It shows that the convergence was the
10 result of an event that occurred the week of August the 3rd. I
11 will add that her reports always opined about the convergence
12 of August 3rd. I believe that Dr. Kan agrees that there was a
13 convergence on October 3rd.
14 THE COURT: I don't want to hear substantive argument.
15 MR. LERMAN: Just the final point on this is that what
16 this adds, if anything, is just a statistical confirmation of
17 an opinion that was already offered, and this confirmation was
18 provided in response to Dr. Kan's supplemental report.
19 THE COURT: And remind me when Dr. Khan's supplemental
20 report was served?
21 MR. LERMAN: June 11.
22 THE COURT: And paragraphs 140 to 142?
23 MR. LERMAN: If you'll give me a moment.
24 Do these appear to relate to the October 2020 notes?
25 THE COURT: Correct.

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1 MR. LERMAN: Your Honor, Dr. Kan provided an analysis
2 of the so-called convergence of the three other notes at issue,
3 the '21, '22, and '23 notes. In conducting the analysis, he
4 provided a certain amount of backup data that included data on
5 the 2020 notes. But he did not provide any graphical depiction
6 of those notes on any of those charts. What Dr. Sabry did was
7 simply include those notes in addition to the pricing history
8 and transactions of the other notes that were included. So
9 essentially she was taking data that Dr. Kan already had and in
10 fact had already provided and simply presented them graphically
11 alongside the trading histories of the other notes, out of
12 completeness.
13 THE COURT: All right. But I take it that Dr. Sabry
14 did not discuss the 2020 notes in either of her initial
15 reports? I'm not asking you.
16 MR. LERMAN: She did discuss them in her opening
17 report. She did not provide the graphical depiction of them,
18 but she did describe the 2020 notes in her opening report. And
19 then when Dr. Kan came and made allegations about the so-called
20 convergence, she then presented them graphically alongside the
21 others, but it's not new -- the discussion of 2020 notes is not
22 new to that, the data. She did discuss them in her opening
23 report.
24 THE COURT: Counsel for Services, anything you want to
25 say on these particular paragraphs?

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1 MR. MARKS: Yes. Your Honor, with respect to 140,
2 141, 142, with respect to the 2020 notes, Dr. Sabry did not
3 mention them in the initial report. What she said was that
4 they're not relevant to this case. And when Dr. Kan did his
5 convergence analysis, he includes '21s, '22s, and '23s. She
6 did not, in her rebuttal report in May, she did not say
7 anything about the 2020s. Now, in her affidavit, for the first
8 time, she not only graphs the 2020s, but does an analysis about
9 it, saying that this completely rebuts Dr. Kan's analysis,
10 which was in his April 20th report. So she had three months
11 and a rebuttal report. She could have done this already. And
12 this is a completely new analysis, a completely new opinion,
13 which we did not have the opportunity to depose or question her
14 about.
15 MR. LERMAN: Your Honor, if I may, it's not accurate
16 to say that Dr. Sabry said the notes are irrelevant. She said
17 they're not directly at issue here because, as we learned in
18 court yesterday, or discussed in court yesterday, they were not
19 treated for the August '22/3 notes, and that they were not
20 treated for the new notes. So when discussing the net benefits
21 of the transaction, Dr. Sabry often excluded those notes,
22 although not always. Sometimes she didn't. So while she said
23 they were not directly at issue, they are relevant. And
24 Dr. Kan made them extremely relevant when he presented trading
25 information to show a so-called convergence and omitted the

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I7PAUSB2ps Sabry - Cross
1 October 2020 notes.
2 THE COURT: Again, I'm at a slight disadvantage,
3 because nobody gave me the actual reports, which are the basis
4 for the objection. Having said that, I think I'm persuaded
5 that, both sides, there's been a little bit of a moving target,
6 if you will, with respect to these experts on both sides,
7 given, for example, the quite recent disclosures by Dr. Kan.
8 So I am persuaded, between that and the fact that this is sort
9 of within the larger scope of the opinions that were offered in
10 the earlier reports, that I will allow it and Services can
11 cross-examine Dr. Sabry on either her change in view with
12 respect to the relevance of the 2020 notes and/or the substance
13 of the opinions that she offers on that front.
14 So, with that, the objections are overruled and
15 Aurelius Exhibit 319 is admitted.
16 (Defendant's Exhibit Aurelius 319 received in
17 evidence)
18 MR. LERMAN: Thank you, your Honor.
19 Finally, I would just move to have Dr. Sabry
20 recognized as an expert in economics and evaluation of
21 securities, derivatives, illiquid assets in businesses.
22 THE COURT: I think that is a rather broad category,
23 but any objection?
24 MR. MARKS: No objection.
25 THE COURT: All right. I will so recognize her.

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1 Cross-examination.
2 CROSS-EXAMINATION
3 BY MRS. KARIS:
4 Q. Good morning, Dr. Sabry.
5 A. Good morning.
6 Q. You were here when Mr. Cheeseman just testified, correct?
8 Q. And you've been listening to the testimony given to this
9 Court over the last couple of days.
10 A. For some of it. I was here for some of it but not all.
11 THE COURT: Were you here for the part where I said
12 you have to be closer to the microphone?
13 Thank you.
14 THE WITNESS: Thank you.
15 A. I was here for part of the day, the days, not all the
16 testimonies.
17 Q. But you at least heard all of Mr. Cheeseman's testimony
18 that he just gave, correct?
19 A. Yes, that's correct.
20 Q. And did you also review his affidavit that has been
21 submitted to this Court as evidence?
22 A. Yes.
23 Q. And Mr. Gunderman testified yesterday. Did you observe his
24 live testimony?
25 A. I observed part of his testimony, correct.

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1 Q. And did you also review the affidavit that he submitted to
2 this Court?
3 A. I don't recall I did, no.
4 Q. Now, you heard Mr. Cheeseman talk about his background and
5 experience in new bond issuances and exchange offers. Correct?
7 Q. I want to talk a little bit now about your experience,
8 given that you're offering opinions to this Court. You have
9 never worked as an expert where you determined the net benefit
10 of a debt exchange transaction, other than in this case,
11 correct?
13 Q. You have never offered an expert opinion, in any court,
14 anywhere in the country, involving a valuation of any other
15 type of unsecured debt security, correct?
16 A. That's not correct. I did -- no.
17 Q. That's not correct?
18 A. No.
19 Q. OK. Do you recall giving your testimony in a deposition in
20 this case?
21 A. That's right.
22 Q. And if I can ask that we look at your deposition
23 transcript, page 29, lines 4 through 8.
24 MRS. KARIS: If you can highlight the lines 4 through
25 8, please.

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1 Q. Were you asked the following question in your deposition?
2 A. Yes.
3 Q. "My question was, have you ever offered an expert opinion
4 prior to this case involving valuation of an unsecured
5 corporate debt security?" And did you give the answer, "No"?
6 A. That's -- yes, I did.
7 Q. Now, you taught courses for some period of time, correct?
9 Q. But you never taught any classes about exchanging offers,
10 correct?
12 Q. And you never taught any courses -- I'm sorry. You also
13 have never written any articles about debt exchange offers.
14 Correct?
15 A. That's right.
16 Q. You've never worked as an investment banker?
17 A. Yes.
18 Q. That's correct?
20 Q. And you've never worked in an investment bank in any
21 capacity. Correct?
23 Q. You've never been employed by a financial Services firm in
24 any capacity. Correct?
25 A. I've been employed as a consultant to financial

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1 institutions, yes.
2 Q. As a consultant, but you've never been employed by an
3 investment bank or any financial Services institution --
5 Q. -- to work for clients, correct?
7 THE COURT: Dr. Sabry, just make sure that Ms. Karis
8 finishes her question before you answer --
9 THE WITNESS: Yes, your Honor.
10 THE COURT: -- so that the record is clear, please.
11 Thank you.
13 Q. And you've never worked as an analyst for any credit rating
14 agency, correct?
16 Q. You've never participated in determining what an exchange
17 ratio should be in the context of an ongoing debt exchange.
18 Correct?
19 A. Correct.
20 Q. You have no professional experience advising an investor
21 about whether to participate in a debt exchange offer, correct?
22 A. Correct.
23 Q. And you have never personally exchanged notes in connection
24 with a debt exchange?
25 A. That's right.

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1 Q. You've heard Mr. Cheeseman's testimony. Did you hear that
2 he's been involved in over a thousand different debt exchange
3 transactions?
4 A. Yes.
5 Q. Do you accept that Mr. Cheeseman, who worked on this actual
6 deal, had extensive experience when he was making
7 recommendations on the exchange ratio for this exchange?
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

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I7pdusb3 Sabry - cross
1 Q. Now, given whatever background and experience you had, you
2 offered -- you're going to offer various opinions to this
3 Court, correct?
5 Q. And if we can look at your report, at page 11, please --
6 I'm sorry, paragraph 11, which is WIN Exhibit -- I'm sorry,
7 your report is not an exhibit, all right, affidavit. Let's
8 see. Apologies.
9 (Pause)
10 Given your experience, you were asked by counsel for
11 Aurelius to do four things in this case, correct?
12 A. That's right.
13 Q. And one of whom was to assess the events leading to the
14 exchange offers, is that correct?
16 Q. And in order to assess the events that led to the exchange
17 offers, did you look at the Indenture that was issued as part
18 of the transaction?
19 A. Please repeat the question.
20 Q. As part of assessing the events leading to the exchange
21 offer, did you look at the Indenture that governs this
22 transaction?
23 A. I believe I did, yes.
24 Q. Now, you looked at the Indenture, but I want to talk about
25 what you are not offering to this Court in terms of opinions in

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1 connection with what you were asked to do. We can leave this
2 up here.
3 You are not offering any opinions that Services
4 breached the Indenture for the August 2023 notes, correct?
6 Q. And you're not offering any opinions on whether there has
7 ever been a default under the Indenture, including under
8 Section 4.09, correct?
10 Q. And you're not intending to offer any opinions on what was
11 or wasn't permitted refinancing indebtedness as outlined in the
12 Indenture, correct?
14 Q. And you've been here and heard there's been testimony about
15 the word "premium" in Section 4.09(b) of the Indenture,
16 correct, (b)(v) in particular?
18 Q. You have no opinion regarding the contractual meaning of
19 the word "premium," correct?
21 Q. And you are not offering an opinion to this Court as to
22 whether a net benefit, which is what your opinion speaks to, is
23 the same thing as a premium, correct?
25 Q. You're not offering this Court any opinions on how the

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1 terms of the debt exchange should have been structured in order
2 to incentivize a particular number of noteholders to
3 participate, correct?
4 A. I'm sorry. Please repeat the question.
5 Q. Sure. You don't intend to offer any opinions on how the
6 structure of the terms of the debt exchange should have been
7 made in order to incentivize participants, correct?
9 Q. You also are not offering any opinions to this Court on
10 what would have been reasonable for Citi or Services to rely on
11 in determining the terms of that exchange offer, correct?
13 Q. And you have no opinions on whether it was proper for
14 Services to issue additional 6-3/8 notes due August of 2023, is
15 that correct?
17 Q. So if we can go back to the screen that we just had up,
18 please.
19 Under (b), where you say one of the things you were
20 asked by counsel to do was to "estimate the net benefits that
21 Windstream provided to bondholders to enter into the exchanges
22 and evaluate the exchange ratios that would have left investors
23 indifferent between holding and exchanging their notes -- that
24 is, the point of economic or mathematical equivalence of the
25 bonds being exchanged," when you say you were looking at a rate

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1 that would have left investors indifferent, did you see
2 anything in the Indenture that spoke to setting exchange ratios
3 that would leave investors indifferent about making an
4 exchange?
5 MR. LERMAN: Objection, your Honor.
6 THE COURT: Basis?
7 MR. LERMAN: She is not here to testify about her
8 interpretation of the Indenture.
10 BY MS. KARIS:
11 Q. Let's see if we can tie up your assessment of the events
12 and then whatever opinions you offer about investors being
13 indifferent.
14 You're familiar -- strike that. You're aware, in
15 terms of the events leading to the exchange offers, that Citi
16 worked on this transaction prior to selecting that exchange
17 rate that you refer to in part (b) of your opinions, correct?
18 A. I don't have any knowledge of when Citi was retained for --
19 to assist with the exchange.
20 Q. OK. Did you read Mr. Cheeseman's testimony -- deposition
21 testimony as part of the materials you relied on?
22 A. Yes, I reviewed it. I just don't recall exactly when they
23 were retained. It's not relevant to my opinion here.
24 Q. OK. And so when you say "to assess the events leading to
25 the exchange offers," was it relevant to your opinions what

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1 work Citi did in connection with determining the exchange
2 ratios, yes or no?
3 A. Some of the work was relevant to the opinions I gave here,
4 yes.
5 Q. Was it relevant to your work in assessing the events, in
6 order to determine an exchange ratio, whether they went and
7 spoke to the marketplace prior to setting those exchange
8 ratios? And by "the marketplace," I mean investors.
9 A. Not directly.
10 THE COURT: Can you explain what you mean by "not
11 directly"?
12 THE WITNESS: I did not -- my analysis was specific to
13 the exchange ratios or the terms of the exchange that actually
14 took place, that was offered to the market, and is not
15 dependent on the events leading to that.
16 THE COURT: So, in other words, the feedback, if any,
17 that Citi or Windstream received from the market in the period
18 leading up to the actual exchange offer is not relevant to your
19 analysis, is that correct?
20 THE WITNESS: It's not relevant to the specific
21 question I answered, yes.
22 THE COURT: Is it relevant to any of the opinions that
23 you have offered in your --
24 THE WITNESS: Yes. The analysis that -- some of the
25 analysis that Citi prepared in examining the exchange -- the

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1 terms of the exchange is relevant to my analysis.
2 THE COURT: But not the feedback that they received
3 from the market in the days or weeks leading up to the
4 transaction, correct?
5 THE WITNESS: That's correct, yes.
6 THE COURT: OK.
7 BY MS. KARIS:
8 Q. And, so, when you reference "evaluating exchange ratios
9 that would have left investors indifferent," you did not look
10 at what investors were saying about whether they were
11 indifferent to different exchange ratios, is that correct? Yes
12 or no?
13 A. No.
14 Q. It's incorrect? There is a double negative. Let me try
15 that again.
16 You reached opinions in this case about what exchange
17 ratios would have left investors indifferent. That's your
18 word, correct?
20 Q. And in assessing whether an investor was indifferent, you
21 didn't look at what investors were saying about their
22 indifference, correct?
23 A. I didn't, that's correct.
24 Q. And so you're offering opinions to this Court about what
25 would have left an investor indifferent -- meaning didn't care

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1 about exchanging their notes -- without even considering what
2 investors were saying; is that fair?
3 A. I considered what investors were -- you know, their views
4 as reflected in the prices and the volumes in the markets, yes.
5 Q. You considered their views as reflected in the prices that
6 were finally set, correct?
7 A. The ultimate transaction prices in the market, which would
8 reflect their consensus value of the different notes, yes.
9 Q. But you didn't look at whether investors would have
10 accepted, or saying that they would have accepted different
11 rates, correct?
12 A. This is -- it's correct that it's not part of the
13 calculation.
14 Q. OK. Now, in assessing the events that led to the exchange
15 offers, did you look at what diligence Windstream did in --
16 before they finally selected the exchange ratios that were part
17 of the August 2023 notes?
18 A. I examined the internal documents and presentations where
19 the terms of the exchange were discussed, yes.
20 Q. OK.
21 A. And also the fact witnesses' testimony regarding the
22 exchange, yes.
23 THE COURT: Can I pause for one moment and go back one
24 step?
25 I know you were here during the testimony of

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1 Mr. Cheeseman, correct?
2 THE WITNESS: That is correct.
3 THE COURT: And you heard him testify -- and I think
4 that's what led to Ms. Karis' questions -- that he solicited
5 feedback from ten investors, sophisticated investors with
6 respect to the exchange ratios and before they made
7 recommendations to Windstream. Did you hear that?
8 THE WITNESS: Yes, I did.
9 THE COURT: So do you have an understanding can -- an
10 expert understanding or view as to why Citi or, you know, in
11 connection with transactions like this that would be done and
12 what relevance it should or shouldn't have to the pricing and
13 setting of exchange ratios?
14 THE WITNESS: It would be done to get feedback from
15 the bondholders of what they would like to see in the terms of
16 the exchange.
17 THE COURT: But it's not relevant to your analysis of
18 whether the exchange ratio was set at a level that would make
19 the bondholders indifferent?
20 I guess what I'm trying to understand is why in real
21 life, if you will, market participants would solicit that kind
22 of feedback in setting the exchange ratios but you don't think
23 it's relevant to your analysis of whether the ratios that were
24 set were set at a level above or below the price that the
25 investors would be indifferent?

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1 THE WITNESS: I assumed that the -- in the analysis of
2 net benefits that the ultimate exchange ratios was a result of
3 negotiations with the investors, who have a stake. And my
4 question -- once that rate is determined, my question was, what
5 is the -- what was the expected benefit for investors given the
6 terms of the exchange, the final terms of the exchange as is,
7 whether what would be the value or the expected value of the
8 option to hold the existing note and not exchange and what is
9 the value to exchange the note and agree to exchange the note
10 into the new August 2023 note.
11 THE COURT: All right. And --
12 THE WITNESS: As given, the terms of the exchange,
13 that it was final -- was determined finally by Windstream in
14 connection with Citi.
15 Then I asked the question, OK, what is the exchange
16 ratio -- given the market prices of the notes, what is the
17 exchange ratio that would leave these two options of holding
18 and exchanging the same as far as an investor is concerned.
19 THE COURT: All right. Carry on.
21 BY MS. KARIS:
22 Q. You did look, you said, at documents that looked at the
23 diligence, or the efforts that Windstream undertook prior to
24 issuing these August -- new August 2023 notes, correct?
25 A. I looked at the documents that I cited as backup to my

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1 affidavit, yes.
2 Q. And you saw that, as part of determining an exchange ratio,
3 Services had multiple investors at different times looking at
4 this -- I'm sorry, multiple investment advisors looking at this
5 transaction, JPMorgan originally and then Citi, correct?
6 A. That's correct. And I cite some of their analysis in my
7 affidavit.
8 Q. And there were numerous discussions between the executives
9 of Services, the board members of Services, and their financial
10 advisors to discuss what terms could be reached in order to
11 close these new August 2023 notes, correct?
12 A. Again, I don't know the extent of all the negotiations.
13 Whatever internal documents related to the exchange that I
14 reviewed, I have cited either in the affidavit as well as in
15 the backup to the affidavit.
16 Q. So in assessing, again, what would have left investors
17 indifferent between holding and exchanging their notes, you
18 considered the actions that were taken by the board and by the
19 executives of Services on the advice of their financial
20 investors, corrects?
21 A. To the extent it's reflected in the final terms of the
22 exchange and the actions of the investors, again, as reflected
23 by the transaction prices, then it would be reflected in my
24 analysis.
25 Q. And did you come to understand, then, that the exchange

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1 ratios that were selected were selected at the recommendation
2 of Mr. Cheeseman and Citi?
3 A. That's correct, and some of the other fact witnesses
4 indicated that JPMorgan also, that they relied on the
5 recommendations of JPMorgan.
6 Q. Did you think it was reasonable, in assessing your opinions
7 in this case, for Services to rely on two experienced financial
8 advisors like JPMorgan and Citi in selecting an exchange ratio?
9 A. I have not given any opinions as to whether it was
10 reasonable for Windstream to rely on JPMorgan's recommendations
11 or on Citi's recommendations.
12 Q. So you don't have an opinion one way or the other on that,
13 correct?
14 A. No, I did not provide an opinion as to the reasonableness
15 of this reliance.
16 Q. And so, then, for the purpose of determining whether a
17 premium was reasonably necessary in order to conduct this
18 transaction, you did not look and form any opinions on the
19 reasonableness of relying on those two financial advisors,
20 correct?
21 MR. LERMAN: Objection, your Honor. The witness
22 already testified that she did not in fact determine whether a
23 premium was reasonable and necessary.
25 BY MS. KARIS:

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1 Q. I'm going to go to one of your opinions later and we will
2 come back to that as to whether you at least offer some
3 opinions on reasonableness.
4 Now, you are aware, Dr. Sabry, that the notes that
5 were at issue, each of them, the '21, the June '22, the
6 April 2023 notes, all of them had maturity dates that were
7 shorter than the new notes that were being proposed, the
8 August 2023 notes, correct?
10 Q. And all of them had higher coupon rates than the new note
11 that was being proposed, correct?
12 A. That is correct.
13 Q. And would you agree with me that a reasonable investor is
14 not going to give you a note with a higher coupon rate, shorter
15 maturity for the identical principal amount note -- at a lower
16 rate with a longer maturity? Yes or no?
17 MR. LERMAN: Objection, your Honor. That, too, is
18 outside the scope of this. She was asked and has actually
19 testified that she is not testifying as to the reasonableness
20 of the rate.
21 THE COURT: Overruled.
22 BY MS. KARIS:
23 Q. Can you answer that question yes or no?
24 A. In general, yes.
25 Q. You testified, Dr. Sabry, that you looked at

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1 Mr. Cheeseman's affidavit, correct, in addition to listening to
2 his testimony?
3 A. Yes, I did.
4 Q. And if we can look to paragraph 41 of that affidavit.
5 Mr. Cheeseman testified via direct that in setting --
6 it says, "As noted above, the calculation of the exchange
7 ratios involved taking into account differences in coupon
8 payments and maturities among the different series of bond
9 issuances."
10 You were aware that that was part of his consideration
11 in setting the exchange ratio, correct?
12 A. Yes.
13 Q. And he went on to say, "We also considered the current
14 market prices for the notes -- which we believed had been
15 affected by the notice of default -- and the historical pricing
16 spreads among the different series of notes, which informed our
17 expectations about how the notes would trade once the risk
18 created by the notice of default had been lifted."
19 Correct?
20 A. That's what the document says, yes. That's correct.
21 Q. And, so, you do offer opinions as to what effect the Notice
22 of Default had in connection with determining whether a net
23 benefit was conferred on the bondholders who consented and
24 exchanged their old notes, correct?
25 A. I'm sorry. Can you refer me to my -- to the paragraph in

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1 the affidavit where I give this opinion? Because I'm not quite
2 sure I follow this.
3 Q. OK. Let me back up.
4 What you did in this case is you decided was there a
5 net benefit based on the exchange that took place, correct?
6 A. Based on the actual -- the terms of the final -- the final
7 terms of the exchange for the three notes at issue, I assessed
8 the expected value of holding versus expected value of
9 exchanging into the new August 2023 note, using, you know,
10 three different methods. One of them is the market prices,
11 yes.
12 Q. OK. And in assessing the value of holding versus
13 exchanging, you selected a market price that you were going to
14 use to determine that net benefit, correct?
15 A. No, that's not exactly correct. I used all -- I
16 actually -- I first presented the results using the prices --
17 the market prices on October 18th in my first method, and I
18 also showed prices using August 4th or an average of
19 August 4th to 10th. And then I showed -- demonstrated in the
20 affidavit in the sensitivity analysis Section that there will
21 be net -- given the terms, the final terms of the exchange,
22 that there will be positive net benefits if you calculate -- do
23 these calculations any day between the end of July or August --
24 sorry, between August and November 7th.
25 Q. OK. So in looking at the market prices, from

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1 November 4th --
2 A. From August --
3 Q. I'm sorry, from August 4th to November.
4 A. Yes.
5 Q. One of the things you refer to is what effect the Notice of
6 Default had on those market prices, correct?
7 A. Correct, to the extent it was reflected in the value of the
8 notes that are being traded and as well as the volume of the
9 trade, yes.
10 Q. You did not look at any historical data prior to
11 August 3rd, correct?
12 A. No, that's not correct.
13 Q. OK.
14 A. I examined the value of the notes and reported the value of
15 the notes in the affidavit as far back as 2015. All the way
16 until -- actually, I have an appendix -- a second appendix in
17 my report that goes from the beginning of 2015 through April of
18 this year.
19 Q. In assessing the market prices and determining net benefit,
20 one way you looked at them is to look at the market price on
21 October 18th, correct?
22 A. One of the -- one of them in the market price method, yes.
23 Q. One of the other ways you looked at it is to look at the
24 market price from August 4th to the beginning of November,
25 correct?

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1 A. That's correct. And it would be a calculation of net
2 benefits for every day during that time period.
3 Q. But starting August 4th, ending in November, correct?
5 Q. And third way you looked at it is what market date did you
6 look at?
7 A. I'm sorry. This was all just the first method that I used,
8 which relies on the transaction prices of the notes.
9 Q. OK. And those transaction prices and the third methodology
10 that you used in offering your initial opinions --
11 A. The second methodology that I used calculated the net
12 present value of the notes or, more specifically, the net
13 present value of the option to hold versus the option to
14 exchange, taking into account the differences in coupons and
15 maturities of the notes as well as the riskiness of the cash
16 flows at issue.
17 Q. OK.
18 A. So that's the second method. And, again, I reported it
19 using prices at different points in time. So the results are
20 not predicated on the use of a single market price. The
21 results remain qualitatively the same whether I used the date
22 October 18th or August 4th or any day in between August and
23 November.
24 Q. Any day between August and November, that's what I'm trying
25 to get at.

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2 Q. Did you include any day prior to August 3rd in those
3 methods that you just identified?
4 A. No, I did not, and I can explain why.
5 Q. Thank you. That's all I was trying to get at, that the
6 analysis that you did, none of them looked at prices prior to
8 A. No, that's not correct.
9 Q. Let me move on.
10 Now, you are aware that Mr. Cheeseman, in setting the
11 exchange ratios here, he did look at historic prices prior to
13 A. Yes.
14 Q. And he also looked at what effect the notice of default had
15 on those market prices as they existed from August to
16 September, October, November, the period that you looked at,
17 correct? You were here and heard him testify about that.
18 (Pause)
19 A. I'm sorry. That was his testimony, yes.
20 Q. OK. And when we talk about what effect the Notice of
21 Default had, which is how we got here, would you agree with me
22 that the marketplace was aware of the risk of a default -- a
23 technical default being claimed by Aurelius in at least the
24 mid-August to September time period, before the Notice of
25 Default came out? Yes or no?

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1 A. I don't know what the market was aware of, but there was
2 evidence of increased credit risk as reflected in the credit
3 default swap prices by mid to late August.
4 Q. My question was whether the marketplace was aware of a
5 Notice of Default, and I believe you said you don't know what
6 the marketplace was aware of, correct?
7 A. There was no -- no, that's not exactly correct.
8 Q. OK.
9 A. Umm --
10 Q. That's fine.
11 A. OK.
12 Q. Now, I want to talk about the analysis that you then did.
13 The CDS, the credit default swap, that you
14 identified --
15 A. Yes.
16 Q. -- were you aware that Aurelius had purchased positions in
17 connection with -- had purchased CDSs on these August 2023
18 notes?
19 A. Based on reading the documents in the case, yes.
20 Q. And did you ask Aurelius for information about what CDS
21 position they held in these notes?
22 A. I don't think I did.
23 Q. Did you ask Aurelius about what positions they held in
24 these notes, that is, ownership, what percentage they owned?
25 A. Yes.

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1 Q. And did Aurelius refuse to provide you with information
2 about what position it held in these notes?
3 A. We didn't hear back. It was at the beginning of the case.
4 I asked for the trading purchasing -- or the purchasing
5 activities of Aurelius among many other things I asked at the
6 beginning of the case. Once I, you know, looked at the
7 questions that I was specifically asked to address, and I
8 determined that I have enough information and data to answer
9 them.
10 Q. So you asked but you never received their trading history,
11 correct?
13 Q. And you determined that you didn't need it even though you
14 had originally asked for it, is that correct?
15 A. I determined, once I saw these -- the specific questions
16 that I am supposed to answer and I looked -- examined -- I did
17 certain analysis related to the data, the pricing and the
18 volume of the notes, I determined that I have enough
19 information to answer the questions that I was specifically
20 asked to answer.
21 Q. And since one of the questions you were asked to
22 specifically answer was whether an investor would be
23 indifferent in trading their old notes for the new notes, did
24 you ask Aurelius at what rate it would have been indifferent in
25 trading their old notes for the new notes?

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1 A. I --
2 Q. Yes or no?
3 A. No.
4 Q. Now, am I correct that you define "indifference" as
5 basically the point of economic or mathematical equivalence
6 where bonds are exchanged?
7 A. I define indifference in my affidavit as the point at which
8 an investor would be indifferent between the options of holding
9 and exchanging, or the expected value of holding and exchanging
10 would be the same.
11 Q. Let's look at your affidavit.
12 A. Yes.
13 Q. Paragraph 11, please.
14 You define "indifference" there by the difference
15 between, as you said, holding and exchanging the point of
16 economic or mathematical equivalence of the bonds being
17 exchanged, is that correct?
18 A. To clarify, it is -- I define economic equivalence as those
19 exchange ratios that would have left the investors indifferent
20 between holding and exchanging. So it's the -- it's an
21 alternative exchange ratio that would have left the expected
22 value of holding and expected value of exchanging exactly the
23 same.
24 Q. Exactly the same so that the bondholder didn't care whether
25 they had the old or the new, is that correct?

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1 A. The question is what is the -- that exchange rate -- an
2 alternative exchange ratio, not what actually -- not what the
3 actual exchange ratio is, what is this alternative exchange
4 ratio that made the expected value of these two options the
5 same.
6 Q. And by "the same," you mean identical?
7 A. Yes.
8 THE COURT: Can I ask you, you may have heard
9 Mr. Cheeseman testify that fixing the exchange ratio in these
10 kinds of transactions is I think the phrase was more art than
11 science; did you hear that?
12 THE WITNESS: That's correct.
13 THE COURT: Do you have a view on that?
14 THE WITNESS: I have a view that it's the --
15 THE COURT: I don't think he is here to hear your
16 opinion.
17 THE WITNESS: Well, your Honor, you asked a question
18 that I wanted to ask, which is to what extent was the risk or
19 the threat of actual default taken into account in determining
20 the terms of the exchange, and I'm not sure that I heard
21 Mr. Cheeseman answer the question.
22 THE COURT: All right. I don't need you to comment on
23 what he did or didn't say. But I guess my question is, it
24 seems to me that what you are -- the analysis that you
25 conducted in your affidavit with respect to what the

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1 indifference exchange ratio would be, if I can call it that, is
2 a purely mathematical calculation, is that correct?
3 THE WITNESS: It's a mathematical calculation,
4 assuming that the prices at the time reflected what the
5 bondholders think and value in terms of these unsecured notes.
6 THE COURT: All right. But in terms of the
7 determination from an economic standpoint of the indifference
8 exchange ratio that, your view is, would be a purely
9 mathematical calculation?
10 THE WITNESS: It would be a mathematical calculation,
11 but it factors in how the bondholders view the notes, or value
12 the notes, as reflected in the transaction prices of the notes.
13 THE COURT: OK.
14 THE WITNESS: It is not a pure, a pure mathematical
15 exercise per se, because I am using transaction prices from a
16 time period where there was a high trading volume in the
17 markets and the sophisticated bondholders were trading these
18 bonds. So I, based on the transaction prices of these notes,
19 I -- yes, I calculated mathematically what the exchange ratio
20 would be that would leave the expected value of these two
21 options the same for them.
22 THE COURT: And can you do that ex-ante, that is,
23 before the exchange ratio is set, or does that require data
24 that you would only get after the transaction based on the bond
25 prices and the exchange participation rates and the like?

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1 THE WITNESS: You could do this exercise ex-ante, but
2 you would still need some measure of how the investors value,
3 like the investors had negotiations and had their own valuation
4 of what the notes -- what this exchange is worth to them. I
5 don't observe their -- this -- their views on that. What I do
6 observe is their views as reflected by the transaction prices,
7 what they value the note as. Do they value the note as 74
8 cents on the dollar? That is the consensus value of the bond
9 to them at that time. And based on that, and on the riskiness
10 of the cash flows, I compute what the indifference point is.
11 THE COURT: All right. Back to you, Ms. Karis.
13 BY MS. KARIS:
14 Q. So applying the methodology that you just described, you
15 offered opinions on what rates -- equivalent exchange ratios
16 would have left investors indifferent with respect to each of
17 the notes that were exchanged, correct?
19 MS. KARIS: Can we pull up demonstrative 1?
20 Q. Dr. Sabry, you've attempted here to summarize, based on the
21 opinions that you offered to the Court, what you determined was
22 the exchange ratio that would have left investors indifferent,
23 as you put it.
24 And then the next column has the actual exchange
25 ratios. Do you see that?

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1 A. Yes, I do.
2 Q. OK. And then we've identified there what the difference is
3 between what was actually given and what you claim would have
4 left investors indifferent. Do you see that?
5 A. One second, please.
6 (Pause)
7 Yes, I see that.
8 Q. Now, this equivalent exchange ratio that you calculated,
9 using the methods that you identified, for the 2021 notes,
10 you -- it's your opinion that the level that would have left
11 investors indifferent would have been to give them somewhere
12 between 90 and $104 per hundred-dollar notes that they had,
13 correct?
14 A. I assumed that this range reflects the different prices,
15 market prices, that I had used. I would have to do this
16 calculation.
17 Q. Right. You used different market prices and came up with
18 slightly different numbers, correct?
20 Q. And you came up with a range depending on which methodology
21 you chose to apply, correct?
23 Q. Some methodologies gave you $90 for what investors would
24 want to be indifferent to exchanging their notes, correct?
25 A. Based on the market price of the notes at that particular

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1 point in time, that would be the estimate, yes.
2 Q. And then some methodologies that you applied said for an
3 investor to be indifferent, they need to get as much as
4 $104 for every hundred-dollar principal note that they have,
5 correct?
7 Q. So even under your analysis, applying some of these
8 methodologies that you used, the net result for these notes
9 would be that you gave more than a hundred dollars in principal
10 to leave an investor indifferent, correct?
11 A. Depending on the assumptions I used and the market prices,
12 yes, that's correct.
13 Q. OK. And the same, then, is true for the 2022s, even under
14 your analysis, using your different market prices, even then
15 you recognize that in some instances you had to give more than
16 a hundred dollars principal value -- principal amount in order
17 to leave an investor indifferent, correct?
18 A. That's correct. I'm trying to find the scenarios where
19 that is the case.
20 Q. Well, under -- do you know whether for each one of the
21 three notes, when you were assessing what would leave an
22 investor indifferent, or be economically equivalent or
23 mathematically equivalent, whether even under your analysis, in
24 each of those instances you had to give more in principal alone
25 than what you were taking from the investor on face value? Yes

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1 or no?
2 A. Yes.
3 Q. OK. Now, am I correct, then, with respect to the 2021,
4 2022, 2023 equivalent exchange ratios that you calculated, you
5 certainly don't know of a single investor anywhere in the world
6 that would have taken those rates to exchange their old notes
7 for new notes for the August 2023 6-3/8 notes, correct?
8 A. That's beyond the scope of my opinion.
9 Q. OK. Now, you offer an opinion that the difference, if you
10 will, between the actual exchange and the equivalent exchange
11 ratio is somewhere between $5 and $19, correct?
12 It is not even an opinion. That is just straight
13 math, correct?
14 A. A calculation, yes.
15 Q. So that last column, the difference between the actual and
16 equivalent column, that just represents, even under your
17 scenario, what the differences were between how much was given
18 and what you calculated to be the equivalent exchange ratio,
19 correct?
21 Q. And on the lower end, it's approximately $6 for the 2021s,
22 5 for the 2022s, and 5 for the 2023s, even under your --
23 applying your methodology, correct?
25 Q. OK. And then, of course, the figures are there for the

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1 higher end, up to 19.40 for the 2021s, 18.54 for the 2022s, and
2 then 21.42 for the 2023s, correct?
4 Q. And then what you opined is that left all investors who
5 were offered this exchange offer with a net benefit, given the
6 amount that was selected, the 110, the 108 and the 107.5,
7 correct?
8 A. Given the 110 and the 108 and the 107, my estimates are
9 that there were positive net benefits based on the market
10 prices any day between the beginning of August and the first
11 week in November, yes. That is still my opinion.
12 Q. So under your analysis, every sophisticated investor that
13 was given the option to participate, which were all noteholders
14 for the 2021, for the 2022, for the 2023s, every one of them
15 was assessing an option, do I take or do I stay, that is, stay
16 where I'm at or take these new notes; they gave them benefits
17 from $5 up to $16/$17, correct?
19 Q. Now, did you assume, in doing your calculations and
20 analysis here, that these were reasonable investors?
21 A. I assumed that they were sophisticated investors who a
22 handful of them held the majority of the notes, yes.
23 Q. So you assumed that these are sophisticated investors who
24 would be able to identify, if you will, a good opportunity if
25 it presents itself, correct?

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1 (Pause)
2 Is that correct?
3 A. I assume so.
4 Q. OK. And let's take these one at a time.
5 For the April 2023 notes, these noteholders, who were
6 going to get this net benefit by just giving what they had for
7 what they were going to get, they were going to get a net
8 benefit of $3.98 up to $17.79 per $100 in notes. Did you look
9 at how many of those sophisticated investors chose to take that
10 benefit versus how many said not good enough for me, I'm not
11 choosing to take this option?
12 A. Right. According to --
13 Q. Did you look at those participation rates?
14 A. Yes, I looked at the participation rates.
15 Q. OK. Now, what was the participation rate for the
16 April 2023 notes.
17 (Pause)
18 In the interest of time, let me see if I can refresh
19 your memory.
20 Does approximately 65 percent --
21 A. Yes, that's correct.
22 Q. So, approximately one-third of these sophisticated
23 investors did not think that net benefits of getting up to $18
24 almost per hundred dollars was good enough for them to take,
25 correct?

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1 A. Not all investors have the same indifference or perception
2 of what the value of the notes are or the position in which
3 they are in, and some of them decided to -- could have decided
4 to hold out for a better deal or another exchange, and some of
5 them held out and got signed up for the second exchange.
6 Q. So not -- I'm sorry. Go ahead, your Honor.
7 THE COURT: This might be what you were about to ask.
8 But can you explain when you say not everybody would have the
9 same indifference preferences, how does that square with your
10 calculation of what the equivalence exchange ratio would have
11 been?
12 THE WITNESS: My analysis is based on, for example,
13 the -- let's take the $4 analysis. That's probably the prices
14 in October. Base on these prices, I computed what would --
15 what would an investor who is considering whether to exchange
16 or not given this price, this is what the net benefit would --
17 he would agree to take on. Some investors may decide that I
18 will hold on maybe and basically not exchange my note, let
19 others exchange their notes, or this deal may not be good
20 enough for me. But the fact is given the terms of the exchange
21 as is, enough people participated that the first exchange got
22 to pass and the technical default was avoided.
23 THE COURT: But is it not a corollary of your opinion
24 that the bondholders who did not exchange -- so of the
25 April 2023 notes, the 35 percent or so who did not exchange --

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1 that that was an economically irrational decision?
2 THE WITNESS: It was either an economically irrational
3 decision for them or it was their expectations of what happens
4 after the exchange is that there would be a better exchange.
5 If they hold out, this exchange will pass and then they can --
6 and the technical default will be avoided, maybe the
7 expectation that the bonds would improve in price, and there
8 was a view that if the first exchange passes, the bonds will
9 improve in price and then they could get a better deal.
10 THE COURT: That the April 2023 bonds would improve in
11 price?
12 THE WITNESS: At the time the exchange was offered,
13 all the notes were trading in, you know, in the lower to
14 mid-70s, and the part of the rationale of the exchange was that
15 there would be an improvement in the performance of the bonds
16 if the technical default is avoided.
17 THE COURT: But that improvement -- all the
18 bondholders would benefit from that improvement whether they
19 exchanged or not, correct?
20 THE WITNESS: Whether they exchanged or not, that's
21 correct.
22 THE COURT: So, in other words, if a bond holder would
23 benefit from that regardless of whether they exchanged,
24 presumably a rational -- economically rational bond holder
25 should make the determination of whether to exchange based

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1 solely on whether there is a net benefit or not, correct?
2 THE WITNESS: Yes. An investor -- a rational bond
3 holder would do that unless the bond holder does not -- is
4 basically -- realizes the position the company is in and is
5 holding for more.
6 THE COURT: And "for more" being another exchange
7 offer --
8 THE WITNESS: Another exchange offer, which eventually
9 happened. On November 28, another exchange happened in which--
10 Windstream basically effected -- pushed the maturity of its
11 note to December 2024 and reduced the outstanding balance of
12 the 2021 and the 2022, who did not participate as much in the
13 first exchange as the April 2023 notes.
14 THE COURT: So assuming that the investors are
15 behaving rationally, and that may not be the case, your view is
16 to the extent that they did not participate in the first
17 exchange, that that was essentially a gamble that they thought
18 they could hold out for a better deal than the already
19 favorable deal that they had been offered, is that correct?
20 THE WITNESS: Yes, that is a plausible explanation for
21 their participation rates.
22 THE COURT: Or they were acting irrationally is the
23 other explanation?
24 THE WITNESS: It's -- it's --
25 THE COURT: It happens.

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1 THE WITNESS: It happens. Do the markets make
2 mistakes? Yes. But you do count on those sophisticated
3 bondholders to be making this calculation correctly.
4 THE COURT: All right. Back to you.
5 BY MS. KARIS:
6 Q. Now, we established that roughly 35 percent of the 2023
7 held out for these reasons that you've identified, possibly?
8 A. Possibly, yes.
9 Q. But in the June 2022 notes, were you aware that only
10 38 percent took the exchange and consent offer that was put to
11 them, which would mean 62 percent, under your analysis, were
12 holding out for whatever unknown reason, correct?
13 A. That's correct. Not every investor needed to
14 participate -- or every -- not every bond holder needed to
15 participate in the first exchange for it to be successful.
16 Q. That's not my question. My question is not how many needed
17 to participate for it to be successful.
18 You've calculated that there were net benefits that
19 were offered as part of the exchange that was for the
20 August 2023 notes, correct?
22 Q. And you say, for the 2022 notes, the net benefit that was
23 offered for that note was somewhere between $4 and $15.40 per
24 $100, correct, is that correct?

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1 Q. OK. And with that offer and that net benefit on the table,
2 62 percent of the June 2022 noteholders did not take that
3 offer, correct?
5 Q. So 62 percent did not think that there was a net benefit to
6 them in taking this offer -- at least 62 percent did not think
7 there was some net benefit to them, because if they were acting
8 as rational investors, they would take something offered to
9 them that would give them a net benefit, correct?
10 A. That's correct, unless they think they could get a better
11 deal.
12 Q. OK.
13 A. If they held out.
14 Q. OK. And then for the 2021s, were you aware that only
15 16 percent agreed to the consent -- to the exchange offer that
16 was offered as part of the 6-3/8 August 2023 exchange?
17 A. Yes.
18 Q. So that would mean 84 percent, again, did not view this --
19 what you identified as a net benefit to be sufficient?
20 A. That's correct, and I -- yes, I document these
21 participation rates in my affidavit, Exhibit 1.
22 Q. OK. And so while you say you calculated net benefits
23 that -- I'm sorry, equivalent exchange ratios that would have
24 left investors indifferent, we know that even at the 110 and
25 108 and 107.5, there were numerous investors that were not

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1 indifferent at those rates, correct?
3 Q. Let's move on.
4 You were also asked to evaluate a couple of
5 alternative exchange scenarios as part of the work that you did
6 in this case, correct?
8 Q. And if we can look at paragraph 98 of your report. I'm
9 sorry, not of your report, of your affidavit. Excuse me.
10 By the way, just to be clear, you saw no evidence that
11 there were investors that held out because they were waiting
12 for some other exchange with some promised terms as of
13 October 18th, correct?
14 A. I only saw that there was another -- a second exchange on
15 November 28th where the 2021 and 2022 notes were offered and
16 exchanged, yes.
17 Q. OK. But you didn't -- you certainly didn't speak to or
18 communicate with any other investors regarding what their
19 rationale was for not closing or not choosing the August 2023
20 notes, correct?
21 A. No.
22 THE COURT: Let me follow up on that.
23 Other than the fact that there was a second exchange
24 offer with respect to two series of the notes, do you have any
25 factual basis for your speculation that some of the investors

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1 may have been holding out for a better deal?
2 THE WITNESS: The documents I saw demonstrated that
3 Citi considered other alternative exchanges before this one.
4 One of them was an exchange at par. So that would -- and the
5 documents that Mr. Cheeseman discussed related to their view
6 about the exchange.
7 THE COURT: But that was all prior to October 17th,
8 when the terms of the transaction were fixed, and October 18th,
9 when they were announced, correct?
10 THE WITNESS: That is correct, yes.
11 THE COURT: So my question is is there anything that
12 you've seen in the materials that you've reviewed that
13 indicates that once the terms of the deal were announced, that
14 there was -- that some of the investors were holding out for a
15 better deal?
16 THE WITNESS: No. But I did examine the participation
17 rates and I asked, you know, the question of given the net
18 benefits that I calculated, which some of them are quite
19 consistent within the benefits that Mr. Cheeseman discussed as
20 well, the investor pickup, the participation rates was not a
21 hundred percent. The participation rates were, you know, as we
22 discussed. And the participation rates for the April 2023 were
23 in the range of 65 percent or so. And the plausible
24 explanation is that some of the investors have, as I said, a
25 different valuation or a different indifference related to the

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1 value of the notes, or the expected value in the future of the
2 notes and what they can get later.
3 THE COURT: But just so I understand, you're basically
4 inferring or deducing that from the participation rate and the
5 fact that it was not a hundred percent? In other words, that's
6 your best possible explanation for the fact that some people
7 elected not to, or entities elected not to participate?
8 THE WITNESS: Yes.
9 THE COURT: OK.
10 BY MS. KARIS:
11 Q. Now, we were going to begin talking about your analysis of
12 alternative exchange scenarios that counsel asked you to
13 consider.
14 MS. KARIS: Your Honor, I'm just cognizant of the
15 clock.
16 THE COURT: I was about to say, instead of getting
17 into a new area, since it is 12:59, I think we will break for
18 lunch. For my planning purposes, any estimates on how much
19 time you have remaining?
20 MS. KARIS: Less than 20 minutes.
21 THE COURT: All right. And, first of all, if you are
22 curious, Services has used six hours and 16 minutes of its
23 time. Aurelius has used two hours and nine minutes of its
24 time.
25 We will break until 2 o'clock. I do have another

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1 matter in a matter of moments, so if you could just clear some
2 space for counsel to be at the tables.
3 Hang on folks. Is there anything we need to discuss?
4 I am guessing not since you all seem to be eager to get out of
5 here.
6 (Discussion off the record)
7 THE COURT: I will see you at 2 o'clock.
8 Dr. Sabry, if you can be here a few minutes before
9 that, that will be great. Thank you.
10 THE CLERK: All rise.
11 (Luncheon recess)
12
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21
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25

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1 A F T E R N O O N S E S S I O N
2 2:00 p.m.
3 FATEN SABRY, resumed.
4 THE COURT: I gave you all an extra three minutes. I
5 hope you made good use of your time.
6 We will continue with the cross-examination of
7 Dr. Sabry. Doctor, you remain under oath. And, Ms. Karis, you
8 may proceed.
10 If we could bring up paragraph 98 of Dr. Sabry's
11 opinions.
12 CROSS EXAMINATION (Cont'd)
13 BY MRS. KARIS:
14 Q. Dr. Sabry, we were speaking of various opinions that you
15 offer in your affidavit. And you indicate here, at paragraph
16 98, that you were asked by counsel to estimate the range of
17 coupon rates and exchange ratios for certain hypothetical
18 exchanges that would have either made investors in the old
19 notes indifferent between holding and exchanging or deliver
20 similar benefits to noteholders. Correct?
22 Q. And so these hypotheticals were given to you by the lawyers
23 for Aurelius, correct?
25 Q. And if we look at scenario 1, to be clear, the two

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1 hypotheticals that you were asked to look at, in scenario 1,
2 was, the first was to assume that you can conduct an exchange
3 at par. Correct?
5 Q. And the second was to assume that you could conduct an
6 exchange at the call price. Correct?
8 Q. And by "par," we established that is face-value-to-face-
9 value, a hundred for a hundred, correct?
10 A. A hundred for a hundred, that's correct.
11 Q. And the call price at that time was approximately between
12 102 and 103 dollars, 104 almost, between the various notes.
13 Correct?
15 Q. But to be clear, it was beyond the scope of your assignment
16 to examine whether refinancing at those terms that you've
17 identified, par or call price, would have been successful in
18 completing this exchange. Correct?
20 Q. And you were here when Mr. Cheeseman testified, and he said
21 that no way would the market have taken par or call price.
22 Correct?
24 Q. You have no knowledge of anyone that would have taken call
25 price or par in connection with these notes. Correct?

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I7PAUSB4ps Sabry - redirect
2 MRS. KARIS: I have no further questions, your Honor.
3 THE COURT: That was a very short 20 minutes.
4 MRS. KARIS: Yes. We are on the clock.
5 THE COURT: All right. Redirect.
8 BY MR. LERMAN:
9 Q. Thank you, Dr. Sabry.
10 I'd like to start where we started off this morning,
11 which is with questions about the opinions offered by
12 Windstream's expert, Dr. Kan, that he submitted after you filed
13 your report. Do you recall that Dr. Kan filed a supplemental
14 report on June 11th, Dr. Sabry?
15 A. Yes. He did.
16 Q. And that report contained opinions regarding trading volume
17 of the Windstream notes?
18 A. Yes.
19 Q. And do you recall that Dr. Kan also provided some
20 additional analyses of trading volume, including on June 22nd
21 and, most recently, July 18th?
22 A. Yes. He did.
23 Q. And that those analyses were provided after you submitted
24 your affidavit with this Court, correct?

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1 Q. Dr. Sabry, could you just explain what Dr. Kan purported to
2 show through the volume trading analysis.
3 A. Dr. Kan opined that there was an abnormal -- and I'm using
4 his terminology -- or unusual trading volume in the August 2023
5 notes relative to the other notes during the period of July
6 and, I think in his other analysis, said June through October
7 13. And he contended, even though he has not presented any
8 evidence, that this unusual trading volume in the 2023 notes is
9 related to the price of the -- or to a slight increase in price
10 of the August 2023 note.
11 Q. I forget the word, I forget what you said, unusual or
12 abnormal trading volume, abnormal high, abnormal low?
13 A. Abnormally high.
14 Q. Did his analysis cause you to change any of the opinions
15 that you've offered in this case?
16 A. No.
17 Q. Why not?
18 A. Because I examined the analysis that Dr. Kan did and the
19 statistical analysis he presented, and there is -- and I have
20 concerns about the -- how valid the analysis is. If we were to
21 simply increase or -- the data points by one week of his
22 result, a lot of the statistical significance of his results
23 would go away.
24 When I estimated the net benefits as of October 18th,
25 the market already had all the information about the threat of

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1 technical default, about what market participants were doing,
2 and there was a lot of -- there was enough trading volume at
3 that time to make the prices I relied on valid and reliable.
4 Q. Thank you. I'd like to unpack that a bit.
5 MR. LERMAN: So, Joe, could I ask you to put up the
6 first slide, please.
7 Q. So, Dr. Sabry, this is a slide entitled "Statistical
8 Significance of the 6 3/8 Percent Trading Volume."
9 THE COURT: To be clear, this is a demonstrative?
10 MR. LERMAN: This is a demonstrative, your Honor.
11 Q. Do this slide in general terms summarize Dr. Kan's results
12 of the trading volume that presented in his reports and
13 subsequent analyses?
14 A. Yes, it is. This is the analysis of his -- Dr. Kan's
15 statistical analysis of whether the trading volume of the 6 3/8
16 is statistically significantly different from the other three
17 notes, the April 2023, the '22, and the '21 notes.
18 Q. OK. And I think this is pretty clear, but just for
19 clarification, can you just run us through one or two of those
20 and what he found.
21 A. Yes. Dr. Kan looked at the trading volumes, the weekly
22 trading volume between June, late June and October 13, and then
23 he tested using a, what we call a one-sided test, whether the
24 difference in the trading volume between the August 2023 and
25 the April 2023, for example, is, is different.

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1 Q. Statistically significant.
2 A. Statistically significantly different. Yes, that's
3 correct.
4 Q. Thank you.
5 A. And then he referred to the fact, to the times when he
6 finds the relation to be significantly different, which means
7 that they behaved differently and it's not due to chance.
8 Q. Thank you. I'm sorry to interrupt.
9 Dr. Sabry, you just used the word "one-sided test"
10 when you were explaining the presumed statistical test by
11 Dr. Kan. Could you just explain what that means for the Court.
12 A. Yes. In hypothesis testing, we are testing what we call a
13 null hypothesis. Usually you are testing whether these two
14 trading volumes are the same, as opposed to an alternative.
15 And Dr. Kan's alternative hypothesis is that the 6 3/8 is at a
16 higher trading volume. So it's a one-sided test.
17 The way the test, these tests usually work is that
18 there is a T value that you compare your parameters to. And
19 when you run a one-sided test, you are -- some research or the
20 consensus, I would say, would say that you are effectively
21 prejudging the results. You are pushing the results or
22 stacking the deck or prejudging that you'll find statistical
23 significance.
24 And so the appropriate way to conduct a test is to
25 report a two-sided test. Because that T value, that determines

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1 whether your results are significant or not, is much smaller in
2 a two-sided test. So it's more conservative.
3 Q. I'm sorry, Dr. Sabry. Did you say more conservative?
4 A. It's more conservative to report a two-sided test,
5 especially when you get different results when run the test
6 using one-sided versus two-sided.
7 Q. Thank you.
8 Dr. Sabry, did you perform a statistical analysis as
9 well on the trading volume data?
10 A. Yes, I did. I -- yes.
11 Q. OK. If we turn to the second slide, please. So on the
12 second slide, you'll see this adds two columns on the right.
13 Does this slide reflect the results of the analysis that you
14 conducted on Dr. Kan's data?
15 A. Yes. I replicated his analysis of the weekly trading
16 volumes, and then I tested the relation also with the trading
17 volume of the 2020 notes, the October 2020 note, and then I
18 used the average of all the four notes. And I find that
19 actually the trading volume in the 2020 note in this was not
20 statistically significantly different from the trading volume
21 of the 6 3/8. And also the statistical significance disappears
22 when you average over all the four notes.
23 Q. So did Dr. Kan include the 2020 notes in his analysis?
24 A. No, he did not.
25 Q. So what you added, at least as reflected on this chart, is

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1 the same analysis but using the 2020 notes.
3 Q. And that, according to your analysis, changes the
4 significance.
5 A. Yes. It gives you a different result. And I should say
6 that all this data is based on Bloomberg.
7 Q. And which type of statistical test? These are all based on
8 the one-tailed test that Dr. Kan used, correct?
9 A. Yes. I followed Dr. Kan's one-sided test here.
10 Q. Thank you.
11 MR. LERMAN: Joe, can you please turn to slide 3.
12 Q. So now I've added to the chart a row on the bottom, which
13 is entitled "October 20th." Does this also correspond to a
14 statistical analysis that you conducted?
15 A. Yes. This corresponds to, again, a one-sided test where,
16 all I did, I used the exact same time period as Dr. Kan, except
17 that I added the one week, which is the week that ends October
18 20th, which would include the analysis of the exchange at issue
19 here.
20 Q. And what do you see according to your analysis when you
21 extend the analysis from the 13th to the 20th?
22 A. I see that you get more results where there is no really
23 statistically significant difference between the trading volume
24 of the 2023 and now the 2021 and 2022, as well as the 2020
25 note.

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1 MR. LERMAN: Could you please turn to the next slide.
2 Q. Same deal here except the new row that has been added says
3 November 3rd. Does this reflect the same statistical analysis
4 that you conducted on Dr. Kan's data?
5 A. Yes. Again, I used a -- in this analysis I'm using a
6 one-sided test, and all I did is I extended the time period
7 through November 3rd. And as you can see from the results,
8 there is no statistically significant difference between the
9 2023 and now the 2020 or the 2023 and '22.
10 Q. We were talking a moment ago about how Dr. Kan used a
11 one-tailed T test and how you yourself have used a one-tailed T
12 test in the chart that's currently up right now. Correct?
14 Q. Did you also do an analysis using a two-tailed T test?
15 A. Yes, I did.
16 MR. LERMAN: Joe, can you please turn to the next
17 slide.
18 Q. Do this reflect the results of that analysis, Dr. Sabry?
19 A. Yes, it does. It shows that when you run a two-sided T
20 test where you would get basically a T value that's twice as
21 large as the one-sided test, then the statistical test would
22 tell you that, you know, the trading volume is no different,
23 for the 2023, is no different than the other notes, for the
24 majority of the notes as well as the averages there, and
25 whether you do that using the October 20th data, ending October

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1 20th or November 3rd.
2 Q. So with the exception of the "yes" with the asterisk in the
3 bottom, which I'll turn to in a second, is it fair to say,
4 then, that once you move to the one-tailed T test, the
5 statistical significance of everything drops away?
6 A. The majority of the results become insignificant, yes.
7 Q. And can you now explain, if you look at the column
8 corresponding to the 2020 notes, it went from "no analysis" to
9 "yes" with an asterisk. Can you explain your result with
10 respect to the comparison of the trading volume of the 6 3/8
11 notes to the 2020 notes.
12 A. What it means is that if you examine or test whether the
13 trading volume of the 2023 is different than the 2020 note,
14 using Dr. Kan's time period but extending it to November 3rd,
15 the trading volume of the 2020 note is actually greater than
16 the 6 3/8 note, for that time period.
17 Q. And that's greater, that is statistically significant?
18 A. And it is significant.
19 THE COURT: Can you just explain again, to make sure I
20 understand what, the distinction is between the one-sided or
21 one-tailed T test and the two-sided or two-tailed.
22 THE WITNESS: Yes. The difference is, in the
23 alternative hypothesis, we are always testing the knowledge
24 that the two values that we're testing are the same. The
25 hypothesis for the one-sided test, the researcher makes a

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1 determination that, one, he's testing the alternative as one
2 trading volume is greater than the other, strictly greater or
3 strictly smaller than the other. And when you structure the
4 test this way, the T value is smaller than when you do the
5 two-sided, is essentially half of the T value when you do a
6 two-sided test. So the literature --
7 THE COURT: In a two-sided test you're looking at
8 what?
9 THE WITNESS: You're looking, the alternative is that
10 they are not the same. You have now that the two trading
11 volumes are the same as opposed to, in the alternative
12 hypothesis, that they are not the same. And it could be higher
13 or lower. And it's a more conservative way of assessing the --
14 or testing the alternatives. And usually a researcher would
15 record both results, especially if the one-sided test gives you
16 a very different answer to the question.
17 THE COURT: OK.
19 Thank you, Dr. Sabry.
20 Q. I'd like to turn now to just a handful of issues that came
21 up during your cross-examination.
22 MR. LERMAN: Thank you, Joe.
23 Q. Dr. Sabry, you were asked on cross whether you considered
24 Aurelius's purchasing of Windstream bonds. Do you recall that?
25 A. Yes.

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1 Q. I'd like to show you a document, a letter that was docketed
2 with the Court.
3 MR. LERMAN: Joe, if we could have that up, please.
4 THE COURT: Has Dr. Sabry seen this letter?
5 MR. LERMAN: She has, but I was going to ask her that.
6 THE COURT: All right. You may proceed.
7 MRS. KARIS: I'm going to object on foundation,
8 because I believe, perhaps incorrectly, that Dr. Sabry said
9 that she did not consider Aurelius's trading volume.
10 THE COURT: Well, I don't entirely know where
11 Mr. Lerman is going with this, so why don't I see where you're
12 going and then I can evaluate.
14 THE COURT: Go ahead.
15 Q. Dr. Sabry, this is a letter that Windstream's counsel
16 submitted to the Court on July 11 regarding your direct
17 testimony.
18 A. Yes.
19 Q. It included a number of objections to your testimony, some
20 of which were discussed this morning. Have you seen this
21 letter?
22 A. Yes.
23 MR. LERMAN: Joe, could you please turn to page 3.
24 Q. I'd like to call your attention to the highlighted portion
25 here at the bottom of the letter, what's labeled paragraph

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1 no. 2. It states that Aurelius's expert -- that's you --
2 "should not be permitted to simply assume and affirmatively
3 testify that prior to August 2017 Aurelius had made no
4 significant purchases and that whatever purchases of notes it
5 has made had no market impact."
6 Dr. Sabry, did you affirmatively testify that, quote,
7 prior to August 2017, Aurelius had made no significant
8 purchases?
9 A. No, I did not.
10 Q. Did you affirmatively testify that whatever purchases
11 Aurelius had made "had no market impact"?
12 A. No, I did not.
13 Q. So why don't you, then, tell us what you did think. Would
14 knowledge of Aurelius's purchases of Windstream notes have had
15 any effect on your analysis?
16 A. The answer is no. And I can explain why I'm saying that.
17 As I testified earlier, I asked for the trading purchases at
18 the beginning of the case. And once I got the data and the
19 assignment of what the questions were, I conducted an analysis
20 of the trading volume of the data, of all the notes at the time
21 and the transaction prices, and my analysis of both of those
22 batches indicated that there was a significant volume of
23 trading happening during the period July through or August
24 through October, which is the time period I am analyzing. I
25 would say of the outstanding balance, maybe half of it traded,

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1 had a trading activity during that time period, which
2 indicated -- and I also documented, obtained transaction data,
3 intra-day transaction data as well as daily transactions data.
4 And based on the standard literatures, for example, the
5 Handbook of Fixed Income, when the market is liquid, the best
6 valuation for a -- or the market value of the bond is the best
7 consensus value of that bond. So once I -- based on that
8 determination, in my statistical analysis, I relied on the
9 transaction prices, during that time period.
10 Q. Thank you.
11 You were also asked this morning about the time period
12 for which you calculated net benefits. Do you recall that?
13 A. Yes.
14 Q. And I believe you said that you calculated net benefits
15 using prices from August 4th through November. Is that
16 correct?
17 A. That's correct. It was the time period after -- sorry. I
18 should --
19 Q. I was just going to ask you to explain why you started on
20 August 4th.
21 A. I started on August 4th because on August 3rd there was a
22 significant event whereby Windstream announced its
23 second-quarter earnings, which the market observers described
24 as disappointing. They also announced the elimination of their
25 dividends and the decision to buy back shares. And as a

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1 result, and within two weeks of that, the, you know, the stock
2 price declined by almost half of its value, but also there was
3 a significant sell-off in the bond, in the notes. And the
4 relative differences between the prices of the notes decreased,
5 or what we call convergence. And I have conducted statistical
6 analysis that shows that, actually, there was a significant
7 shift in the pricing of these notes following the announcement
8 of the second-quarter earning and the elimination of the
9 dividend.
10 Q. Thank you. I just have one further remark on redirect.
11 You were also asked this morning about the
12 participation rate in the exchanges, which were a hundred
13 percent. Do you recall that?
14 A. Yes.
15 Q. And there was some back-and-forth between you and the Court
16 and you and counsel regarding why the participation rates might
17 not have been a hundred and whether or not you could recall
18 evidence that there were ongoing negotiations regarding a
19 potential subsequent exchange that in fact ultimately happened.
20 Correct?
21 A. Correct.
22 Q. I'd like to put up a document, please, that says AX --
23 well, I would just like to say, you told the Court that you
24 couldn't recall any such evidence, regarding such negotiations.
25 Correct?

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2 MR. LERMAN: Joe, could you please put up AX 177 and
3 could you highlight it.
4 Q. This is AX 177. It's a letter. And I'd like to just read
5 out loud the highlighted portion. It's a letter from Bob
6 Gunderman. And it states, "We do not yet have the 2021 and
7 2022 bonds fully consented because a few large bondholders are
8 holding out for concessions that we likely won't give in on the
9 negotiations."
10 Dr. Sabry, this is among the documents that you listed
11 in your materials considered. Does reviewing this document now
12 refresh your recollection regarding the potential explanations
13 for why the participation rate may not have been a hundred
14 percent?
15 A. Yes. I forgot about this document, but it was consistent
16 with the answer I gave as to why participation may not have
17 been a hundred percent. There were different indifference
18 curves for the different investors and some of them may have
19 been holding out for a better deal.
20 Q. Would you please put up the other document. I'm going to
21 show you another document. Do you recall, Dr. Sabry, that you
22 said that you reviewed Mr. Cheeseman's deposition transcripts?
23 A. Yes.
24 Q. Do you recall what particular discussion there may or may
25 not have been about what the holdouts were in fact seeking?

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1 A. No, I don't recall.
2 MR. LERMAN: Joe, if you could please put up this
3 document.
4 Q. I think we have a hard copy to hand you, if you prefer.
5 MR. LERMAN: If I may approach, your Honor?
7 Q. If you could turn to page 69, and just starting at around
8 line 13 and just read to yourself that page and all of page 70.
9 And I don't think we need to read it out loud.
10 A. Yes.
11 Q. So now having seen this document again that I think you
12 said that you reviewed, does this refresh your recollection as
13 to the status of negotiations and what concessions if any the
14 holdouts might have been hoping for when they declined to enter
15 into the initial exchanges?
16 A. Yes, it does. And what the deposition transcript states is
17 that some of the large bond --
18 THE COURT: That's not the question. Just answer the
19 question, please, which is, does it refresh your recollection?
20 THE WITNESS: Sorry. Yes, it does.
21 Q. Thank you. And now, to your recollection, what are some of
22 the concessions that the so-called holdouts were hoping to gain
23 from passing on the first offer?
24 A. Some of the large -- according to the testimony, some of
25 the large holders were hoping to -- they were holding out for

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I7PAUSB4ps Sabry - Recross
1 stricter covenants and more protection for their investments,
2 for example.
3 Q. And then can you explain, this document refers to four or
4 five large holders. The prior document we saw also referred to
5 several large holders. Can you explain what is meant by "large
6 holders," as you understand that term to be used?
7 A. Yes. I understand that, based on presentations that were
8 made earlier on by JPMorgan to Windstream and also by the
9 testimony of Mr. Cheeseman today, that the majority of the
10 notes were held by four or five very large bondholders,
11 including JPMorgan and BlackRock.
12 Q. And so when we're talking about percentages, as we were
13 this morning, 35 percent withholding consents initially and
14 then going on afterwards, that 35 percent may well be held by a
15 couple of large bondholders?
16 MRS. KARIS: Objection, calls for speculation.
17 THE COURT: Overruled.
18 A. It could be, that could be the case.
19 MR. LERMAN: No further questions, your Honor.
20 THE COURT: Any recross?
21 MRS. KARIS: Yes, your Honor.
23 BY MRS. KARIS:
24 Q. Dr. Sabry, just to be clear, if we can pull up Exhibit 177,
25 please, that counsel just showed you, to Aurelius 177, this is

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I7PAUSB4ps
1 the letter you were just shown. Do you recall that?
2 A. Yes.
3 Q. And you were shown the line that said "We do not yet have
4 the 2021 and 2022 bonds fully consented because a few large
5 bondholders are holding out for concessions." That is the line
6 you were shown. Correct?
8 Q. Do you know whether any of those "few large bondholders"
9 were the bondholders that Mr. Cheeseman mentioned this morning?
11 Q. You don't know what percentage of these bondholders were
12 holding out for better terms and chose to not participate.
13 Correct?
14 A. That was not in the scope of my opinion, no.
15 MRS. KARIS: I have nothing further. Thank you.
16 THE COURT: All right. Dr. Sabry, you may step down.
17 You're excused.
18 (Witness excused)
19 MR. GODFREY: May we have one minute, your Honor?
20 We're discussing whether we need to call Dr. Kan.
21 THE COURT: OK. You should tell him that.
22 MR. ROBBINS: Your Honor, if they're going to be
23 consulting, can I step out of the courtroom for a minute?
25 (Counsel confer)

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I7PAUSB4ps
1 MR. GODFREY: Your Honor, I don't know whether this
2 will make you happy, but we are going not to call Dr. Kan.
3 THE COURT: Meaning I should disregard the affidavit
4 that I read.
5 MR. GODFREY: I would not presume to tell the Court
6 what to regard or disregard.
7 THE COURT: Well, I'm not going to regard it if he's
8 not cross-examined.
9 MR. GODFREY: That is correct. But I wasn't going to
10 presume the answer.
11 THE COURT: All right. Well, I will disregard it.
12 Can't get that time back, but --
13 MR. GODFREY: Well now, wait a minute.
14 THE COURT: All right. Mr. Robbins, I don't know if
15 you were in here, but they have elected not to call Dr. Kan.
16 So we will move to Mr. McCarty.
17 MR. ROBBINS: I'm disappointed.
18 THE COURT: Not as disappointed as Dr. Kan.
19 All right. Is Mr. McCarty here?
20 MRS. KARIS: He is.
21 THE COURT: All right. You may approach.
22 MICHIEL McCARTY,
23 called as a witness by the defendant,

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I7PAUSB4ps McCarty - Direct
1 MRS. KARIS: May I approach and hand up these binders?
2 I apologize that it wasn't done with the witness switch.
3 THE COURT: No worries.
4 MRS. KARIS: May I proceed?
8 BY MRS. KARIS:
9 Q. Good afternoon, Mr. McCarty. I handed you a binder. I'm
10 going to ask you to turn to what is behind tab 2, please.
11 A. Yes.
12 Q. Sir, do you recognize the document behind tab 2?
13 MRS. KARIS: Oh, we didn't give you a binder yet.
14 MR. ROBBINS: No.
15 THE COURT: I'm going to take a wild guess and guess
16 that you mean behind tab 3.
17 MRS. KARIS: Yes. Excuse me. And that's not wild at
18 all. Correct. I apologize.
19 THE COURT: No worries.
20 BY MRS. KARIS:
21 Q. OK. I think everybody may have their binders now, and
22 hopefully we're on the right tab, so if you would look behind
23 tab 3, which is WIN Exhibit 196. Do you see that, Mr. McCarty?
24 A. Yes. That's my affidavit.
25 Q. And, Mr. McCarty, if you wouldn't mind turning to the last

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I7PAUSB4ps McCarty - Direct
1 page, do you recognize the signature that is on the last page
2 of this document?
3 A. I do. That's my signature.
4 Q. And are all of the facts -- did you sign this affidavit
5 under penalty of perjury?
6 A. Yes, I did.
7 Q. OK. That's better than we got this morning. We're good.
8 Are all the facts that are stated in this affidavit
9 true and accurate to the best of your knowledge?
10 A. Yes, they are.
11 Q. Are there any corrections or changes that you wish to make
12 before we submit this testimony to the Court?
13 A. No.
14 MRS. KARIS: Your Honor, at this time, we offer the
15 affidavit of Michiel McCarty, Exhibit WIN 196, as Mr. McCarty's
16 direct testimony.
17 THE COURT: All right. It is admitted. The
18 objections are overruled. But let me just say for the record,
19 number one, I am mindful of Aurelius's argument with respect to
20 the relevance writ large of the testimony, and I will take that
21 under advisement. Number two, as I've already indicated, I
22 think all of the more particular objections are relevance
23 objections, and I will consider those in the context of making
24 a final decision in the case. Number three, there are
25 references throughout the testimony to the testimony and

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I7PAUSB4ps McCarty - Cross
1 opinions of Mr. Garcia, who obviously has not been called as a
2 witness. I am not going to strike the testimony because I
3 think he uses Mr. Garcia's opinions to explain his own, but
4 obviously, Mr. Garcia's having not testified, I will basically
5 disregard that portion of the affidavit. And finally, there
6 are some portions of the affidavit that would, that come close,
7 shall I say, to opining on legal matters and forming legal
8 conclusions, and as you know, I will not defer to Mr. McCarty
9 on that front. With those caveats, the objections are
10 overruled and Windstream Exhibit 196 is admitted.
11 (Defendant's Exhibit Windstream 197 received in
12 evidence)
13 MRS. KARIS: Thank you, your Honor. In light of the
14 qualifications set forth in Mr. McCarty's affidavit, we tender
15 Mr. McCarty to the Court as an expert in bond pricing and
16 economics.
17 THE COURT: Any objection?
18 MR. ROBBINS: No objection.
19 THE COURT: He is so accepted.
21 THE COURT: Cross-examination.
22 CROSS-EXAMINATION
23 BY MR. ROBBINS:
24 Q. Good afternoon, Mr. McCarty.
25 A. Good afternoon, Mr. Robbins.

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1 Q. My colleague, Ms. Liu, has handed you a witness notebook.
2 You'll notice that it contains your direct affidavit. Correct?
3 A. Yes, it does.
4 Q. Your deposition?
5 A. Yes, in 10 of 3.
6 Q. It also contains your expert report, I'll represent to you,
7 as well as I suspect almost all the exhibits I intend to use
8 with you this afternoon. Fair enough?
9 A. Yes.
10 Q. All right. I'd like to start, if I might, by just making
11 sure I understand, Mr. McCarty, the scope of the testimony and
12 opinions that you are offering to the Court today. All right?
13 A. Yes, sir.
14 Q. Would you turn with me, please, to the expert affidavit
15 that you -- the affidavit you submitted and that was just
16 admitted into evidence, and tell me when you're there, sir.
17 A. Yes. I'm on page 2.
18 Q. Sorry. You're on page what?
19 A. Page 2 of the affidavit.
20 Q. I didn't direct your attention to any particular page, but
21 that's fine if you're there. But what I'm going to actually
22 ask you to do is to turn to paragraph 38 of your affidavit.
23 Oh, you know, before I do, let me just ask you, you
24 told Windstream's counsel a moment ago that you didn't want to
25 make any changes in your affidavit. Is that right?

(212) 805-0300
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2 Q. And is that, sir, because you read it over recently, read
3 it carefully, and concluded there was nothing you needed to
4 change?
5 A. Yes. I reviewed it. And I don't have any changes.
6 Q. How recently did you review it? Like last night? This
7 morning? When?
8 A. Yes. I think I reviewed it yesterday afternoon just to
9 refresh my memory.
10 Q. And you reviewed it top to bottom, right? You didn't,
11 like, skip around. You read the whole thing.
12 A. I think I read the whole thing, yes.
13 Q. Well, so let me start you with paragraph 38. Tell me when
14 you're there. You'll find it, I believe, on page 16 of your
15 affidavit.
16 A. Yes. I'm there.
17 Q. And, again, what I'm trying to do, to just orient you, sir,
18 I'm just trying to get a sense of -- make sure I understand the
19 scope of the opinions that you have been proffered to give in
20 this case. Fair enough? Are you with me?
21 A. Yes, sir.
22 Q. So now, in paragraph 38, would you just read that to
23 yourself and tell me when you're done. No need to read it into
24 the record. It's in the record. Just read it to yourself so
25 it's fresh in your mind, sir. All right?

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1 A. Yes.
2 Q. Fair to say, sir, that what you tell the Court, in
3 paragraph 38, are some of the features of the 2015 Uniti
4 spinoff or what the parties have been occasionally calling the
5 possible sale and leaseback transaction. Correct?
6 A. Yes, in 37 and 38, yes.
7 Q. Is the answer to my question whether you talk about that in
8 paragraph 38 yes?
9 A. Yes.
10 Q. Now we can talk about 37. In 37, you write --
11 MR. ROBBINS: Can we put that up, Joe. It's easier
12 for me to see.
13 Q. You say, among other things, "Windstream's bond indentures,
14 which contain an unusually narrow sale-leaseback covenant and
15 liberal restricted payment capacity, allowed this transaction."
16 Right? That's exactly what you say in 37.
17 A. Yes.
18 Q. And you're talking about the permissibility of the sale of
19 the leaseback transaction in the indenture that is the subject
20 of this part of the litigation. Correct?
21 A. Yes.
22 Q. You go on to say that the sale and leaseback transaction
23 was "accepted by and beneficial to the company's stakeholders
24 at the time." Right?
25 A. Yes.

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1 Q. And then you go on to say, in the last sentence, "The
2 proceeds of the 2015 transaction were used to repay a
3 significant amount of debt." You say that too.
4 A. Yes.
5 Q. Now, I want you to turn to paragraph 39 of your report.
6 You write, you talk about Aurelius accumulating some notes and
7 claiming a violation of the sale and leaseback covenant of the
8 indenture. And then you offer this view. You say, "Based on
9 my knowledge of the issue and past experience, I disagree with
10 Aurelius's positions on the spinoff's compliance with
11 Windstream's covenants." You see that.
12 A. Yes.
13 Q. All right. Now I want you to turn to the very first
14 paragraph of your affidavit. And I want to put that on the
15 screen. Tell me when you're there, sir.
16 A. Yes. I'm there.
17 Q. In the very first paragraph of your affidavit, you tell the
18 Court, do you not, "I am not offering any opinions regarding
19 the 2015 spinoff transaction"? That is what you say? Yes or
20 no.
21 A. Yes.
22 Q. So I've got to ask you, Mr. McCarty, if you weren't
23 offering any opinions regarding the 2015 spinoff transaction in
24 paragraphs 37, 38, and 39, what exactly were you doing?
25 A. I was -- as I said, the purpose of my report was to give my

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1 opinions on the exchange and the consent. And as I said at the
2 end of my paragraph 39, that my opinions regarding the exchange
3 and consent were not dependent on whether the 2015 transaction
4 was a breach. So that's what I was doing.
5 Q. So you were offering opinions, but you're telling us they
6 don't really matter for your ultimate opinion on the November
7 6th exchange. Is that right?
8 A. No.
9 Q. You're not. That's not right.
10 Well, let me ask you this. Do you want the Court to
11 consider the portions of 37, 38, and 39 that I read you, or
12 would you just as soon have them struck, as we stand here now?
13 A. What I'm trying to explain is that they don't affect my
14 opinions on the consent and the exchange.
15 Q. You nevertheless thought it useful to include three
16 paragraphs of sale and leaseback opinions, notwithstanding your
17 assertion that you're not offering any such opinions. Right?
18 A. They didn't affect my opinions on the exchange and consent.
19 That's correct.
20 Q. So would you like to withdraw them?
21 A. No.
22 Q. Would you like Mr. Friedman, sitting right there, to ask
23 you some questions about the sale and leaseback transaction?
24 Because that's his part of the case. Do you want to stay there
25 and let Mr. Friedman ask about those, or do you not?

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1 MRS. KARIS: Objection.
3 MR. ROBBINS: Thank you.
4 All right. We can take that down, Joe.
5 Q. I wanted to ask just a couple of questions about your ex-
6 pert report before we get into the substance of your opinions.
7 Am I correct, sir, that you hold today the same opinions that
8 you held on April 20th, when you submitted your report?
9 A. Yes.
10 Q. You don't hold any new opinions, you don't hold any
11 different opinions, you don't hold any fewer opinions; you hold
12 exactly the same opinions that you did when you wrote your
13 report.
14 A. I don't think my opinions have changed, no.
15 Q. All right. And take a look at the deposition. It should
16 be in your notebook. I think it's tab 3. Tab 3. Not in
17 evidence. I just want to ask you, first of all, do you have it
18 in front of you, sir?
19 A. Yes. I'm on tab 3.
20 Q. How recently did you look over your deposition?
21 A. I think I reviewed it last week, briefly.
22 Q. Did you read it start to finish?
23 A. I doubt that I read it start to finish. It's a long
24 document. But I reviewed it, to refresh my memory.
25 Q. When you were reading it to yourself, you knew there was a

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1 pretty good chance I might ask you some questions based on your
2 deposition, right?
3 A. That was probably a pretty good assumption.
4 Q. So you were reading it, among other reasons, to see if
5 there was anything you now -- you were reading it among other
6 reasons to see if there was anything in there that you now
7 think you'd like to correct.
8 A. No. That wasn't really the reason. The reason was, in my
9 affidavit, I state that I'm responding to some questions that
10 were raised in my deposition. I just wanted to make sure I
11 remembered some of those.
12 Q. So the answer to my question was, no, that wasn't the
13 reason your read your deposition. Right?
15 Q. All right. It will go a little faster if you just listen
16 to my questions.
17 Did you notice in fact any answers that you gave in
18 the deposition that you now wish to correct?
19 A. No, none that come to mind.
20 Q. All right. I asked you at your deposition, sir, did I not,
21 about the appendix, Section III, where you set out the
22 materials, Mr. McCarty, on which you relied. Correct? You
23 remember I asked you about that.
24 A. Yes.
25 Q. And am I correct, sir, that appendix, Section III, is a

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1 complete list of the documents that you considered in preparing
2 your expert report?
3 A. Yes, I believe it is.
4 Q. And so if a particular document, Mr. McCarty, is not on
5 your list, it's fair to infer that you did not consider that
6 document in formulating the opinions reflected in your report.
7 Correct?
8 A. It's a fair assumption, yes.
9 Q. Now, I see in Section III that you included a list of
10 documents, Windstream documents. Correct?
11 A. Yes.
12 Q. And those Windstream documents, am I right, they bear a
13 Bates stamp, don't they?
14 A. Yes.
15 Q. And you've testified often enough to know that when a
16 document bears a Bates stamp, it means that one of the parties
17 has produced that document in discovery up till that, sometime
18 prior to that moment, correct?
19 A. Yes.
20 Q. So you understood, sir, that all the documents in your list
21 of documents considered, all of them that bore a Bates stamp
22 had been documents produced by one of the parties. Right?
23 A. Yes. I would assume so.
24 Q. And if it was a Windstream document, it would have a
25 Windstream Bates stamp, like a WIN hyphen something. Right?

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1 A. Yes. Some of them might have come through production of
2 other parties, but yes.
3 Q. And, sir, in preparing your expert report, did you
4 consider, do you remember considering any Windstream documents
5 that Windstream had not produced in discovery?
6 A. None that come to my mind right now, no.
7 Q. So it's fair to say, sir, that if there was a Windstream
8 document and you relied on it, it was a document produced by
9 Windstream in discovery, or produced by somebody in discovery.
10 Right?
11 A. Not having been involved in the discovery process myself, I
12 can't really affirm that. I would assume so.
13 Q. In any event, you can't remember relying, in preparing your
14 report, on any Windstream documents that didn't actually have a
15 Bates stamp on them yet. Right?
16 A. I don't recall any, no.
17 Q. All right. Now, you listed no depositions on the schedule
18 of the materials that you considered. Is that right?
19 A. I believe so, yes.
20 Q. In fact, on the day I took your deposition, am I right,
21 sir, you couldn't actually have named a single witness who had
22 been deposed prior to the submission of your report. Isn't
23 that right?
24 A. Well, actually, I think we talked about --
25 Q. That was a yes-or-no question. Give it a try.

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1 MRS. KARIS: Your Honor --
2 Q. Could you name, as of the date of your deposition, a single
3 Windstream witness who had already been deposed? Yes or no.
4 Were you able to remember the name of a single such witness?
5 A. Yes.
6 Q. You were.
7 MRS. KARIS: Your Honor, I'm not sure what the
8 relevance of this is. And, as Mr. Robbins is aware, the date
9 Mr. McCarty submitted his report, on April 20th, the
10 depositions in this case literally had started the week before.
11 Many were -- the transcripts were not ready yet.
12 THE COURT: I understand. And I'll consider it for
13 what, any value it may have.
15 MR. ROBBINS: Well, in light of that, I think I'll --
16 I think I'll move this right along, Judge. Shall I?
17 THE WITNESS: Could I interrupt. Could somebody get
18 me water.
19 MR. ROBBINS: Yes. I'll bring it up to you, sir.
20 THE WITNESS: Thank you very much.
21 MR. ROBBINS: Here you go.
22 THE WITNESS: Thank you, Mr. Robbins. Thank you very
23 much.
24 MR. ROBBINS: You bet.
25 Q. Alrighty. So we're going to skip all the deposition stuff.

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1 You've now read at least a couple depositions. Right?
2 A. I think I've read four so far.
3 Q. Which ones have you read?
4 A. Gunderman, Thomas, Cheeseman, and Davis.
5 Q. Am I right, sir, that, having read those depositions since
6 your report, none of that has altered any of your opinions?
7 You think the same thing today that you thought before you read
8 any of the depositions. Right?
10 Q. Because, as of the date of your own deposition, you hadn't
11 read anybody else's testimony. Right?
12 A. None of them were available yet at that point. Yes.
13 Q. Wait. Are you saying that, on the day of your
14 deposition --
15 A. Sorry. I mis --
16 Q. Anh, it's my turn. Did you just tell me that on the date
17 of your deposition, none of the transcripts of the witnesses
18 deposed in this case were available? Did you just tell me
19 that?
20 This is a yes or no.
21 MRS. KARIS: Your Honor --
22 THE COURT: Let us take a chill, as they say.
23 A. I misunderstood your question. I took it to mean the date
24 of my report. Sorry.
25 Q. None of the depositions were available on the date of your

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1 report?
2 A. Not that I know of, no.
3 Q. OK. And everything you saw in the depositions that you've
4 read since your deposition, your own deposition, have only
5 confirmed the opinions you already have. Right?
7 Q. As a matter of fact, you've not come across a single
8 document in this case that you found to be inconsistent with
9 any opinions that you offered in your report. Right?
10 A. None that I recall right now, no.
11 Q. Now, you agree with me, sir, that it's essential to the
12 role of an expert such as yourself to examine all sides of an
13 issue. Correct?
14 A. Yes.
15 Q. And to read the entirety of documents and not just sort of
16 cherry-pick different quotations. Correct?
18 Q. Do you think you applied those principles in preparing your
19 opinions in this case?
20 A. Yes.
21 Q. And yet you came across nothing that you think is even at
22 odds with any opinions you've offered, correct? Not a single
23 document. Not a single deposition. Right or wrong?
25 Q. All right. Now, it's fair to say, is it not, Mr. McCarty,

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1 that you relied heavily, in this case, in formulating your
2 opinions, on your personal work experience as an investment
3 banker?
5 Q. Just I'm going to go back a paragraph. What date were you
6 deposed, sir? I'm sorry. You were deposed in May, but your
7 report was prepared what date?
8 A. April 20th.
9 Q. So you don't know if -- do you know whether Ms. Moody was
10 deposed on April 12th?
11 A. I didn't focus on -- I focused on the four that I
12 mentioned.
13 Q. For Mr. King on April 13th? You don't know that?
14 A. No. As I said, I picked four depositions that I was
15 interested in.
16 Q. Or Ms. Grumbos, the former treasurer, on April 17th?
17 A. They weren't the four that I focused on, no.
18 Q. You know that Ms. Moody is the general counsel. Correct?
19 A. Yes, I do.
20 Q. You know Mr. King was vice president of investor relations,
21 do you not?
22 A. Yes.
23 Q. You know that Ms. Grumbos was the treasurer at all relevant
24 times in this case, correct?
25 A. Correct.

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1 Q. How did you decide you didn't want to read those?
2 A. Because I wanted to read the CFO, the CEO, and the two
3 bankers. Those were the ones that I felt were most relevant to
4 my opinion.
5 Q. And you decided those were the most relevant without
6 actually reading the ones that you thought were irrelevant.
7 A. No. Just based on my experience. I thought I could get
8 the best from those four.
9 Q. All right. So let's return to your work experience on
10 which you're relying for your opinions. I believe you said you
11 have some 40 years' worth of relevant experience. Is that
12 right?
13 A. Yes. I think it's 43 now.
14 Q. 43. And I'm guessing you've done hundreds of transactions.
15 Right? Maybe thousands.
16 A. I don't keep count, but there's a large number, yes.
17 Q. But am I right, sir, not a one of them resembles this
18 exchange?
19 A. The --
20 Q. I've got to ask you: Not one of these resembles this
21 exchange. Can you tell me yes or no first?
22 A. Yes.
23 Q. So it is true that not one of them resembles this
24 transaction. Yes or no.
25 A. Again, could you repeat the question. I'm confused by the

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1 negative.
2 Q. Oh, OK. Not one of the transactions, of the hundreds of
3 thousands of transactions you've done, resembles the one that
4 you are here to opine on today. Correct?
5 A. No.
6 Q. That is not correct.
8 MR. ROBBINS: Can I have --
9 THE COURT: I know Mr. Robbins wants to ask in a
10 particular manner, but I'm going to ask a more open-ended
11 question. Do any of the transactions you have worked on
12 resemble the one that you're opining on here?
13 THE WITNESS: Yes. I've worked on dozens of
14 transactions where I did exchange offers that were to be able
15 to cure a default. And that is similar here. So that's what
16 I'm referring to.
17 THE COURT: OK. No one knew what you were referring
18 to at all. So that clarifies it. Thank you.
19 MR. ROBBINS: Joe, can I have his deposition, 263,
20 lines 10 through 18.
21 Q. You have those on the screen in front of you.
22 Did I not ask you, sir, "How often have you seen
23 exchanges that extended a particular series of notes for only
24 four months?" Do you see that question?
25 A. Yes, I do.

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I7pdusb5 McCarty - cross
1 MS. KARIS: Your Honor, that is improper impeachment.
3 BY MR. ROBBINS:
4 Q. Did you tell me, sir --
6 MR. ROBBINS: Fair enough.
7 Q. Is it the case, sir, as you sit here today, that you cannot
8 recall any exchange I've done in my 40 years that resembles
9 this exchange as I started --
10 THE COURT: Mr. Robbins, you can try it multiple ways
11 but it is still sustained, so.
12 MR. ROBBINS: All right.
13 THE COURT: That is not proper impeachment.
14 BY MR. ROBBINS:
15 Q. Have you ever seen an exchange, sir, that -- in your
16 experience, on which you are relying, that extended maturities
17 by only four months?
18 A. Not that I can recall four months in specific.
19 Q. OK. All right. Now, I'm going to ask you about the
20 Indenture on which you have given some opinions in this case,
21 sir.
22 And just so -- to orient you. I'm going to use the
23 term November 6th exchange as a shorthand, Mr. McCarty, to
24 describe a consent solicitation and an exchange of certain
25 outstanding Windstream notes, or new notes, and which you call,

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1 in paragraph 50 of your report, the, quote, first exchange
2 offers; fair enough?
3 A. Fair enough.
4 Q. And this is the exchange on which you've offered one or
5 more opinions in this case, right?
7 Q. And you have opined, am I correct, Mr. McCarty, that the
8 November 6th exchange complied with Section 4.09 of the
9 Windstream 6-3/8 Indenture, including its incorporated
10 definition of "permitted refinancing indebtedness;" you have
11 given that opinion to the Court, have you not?
12 A. Only as it relates to corporate finance and capital markets
13 issues.
14 Q. We will all accept that you are not a lawyer and that I'm
15 only asking for your personal experience. But in your
16 experience, sir, you have opined, in paragraphs 5, 57, 58 and
17 59 of your affidavit, that the November 6th exchange complied
18 with 4.09 and the PRI definition, did you not?
19 A. Yes.
20 Q. Now, you would agree with me, would you not, sir, that if I
21 want to know what the agreement is between noteholders and the
22 issuer in a given note purchase transaction, the place to look
23 is the Indenture, correct?
25 Q. So you'd agree with me, would you not, Mr. McCarty, that

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1 simply because a debtor wants to achieve what it thinks or
2 believes or knows in its gut or heart is a laudable corporate
3 purpose, if it turns out to be forbidden by the indenture, they
4 can't do it; you agree with me, right?
5 A. You have to comply with the indenture, I agree with that
6 statement.
7 Q. So what I'd like to do is start with you by looking at the
8 definition of "permitted refinancing indebtedness," and let's
9 put that in front of you. You recognize this, sir?
10 (Pause)
11 Q. Right?
12 A. I believe this is from the Indenture, yes.
13 Q. And --
14 THE COURT: Mr. Robbins, before you go down this path,
15 I already made clear I'm not going to rely on Mr. McCarty's
16 opinions concerning whether this actually complied with the
17 terms of the Indenture, so I wouldn't bother asking him
18 questions along those lines. You can make those arguments
19 later, but.
20 MR. ROBBINS: Does that include even what he calls his
21 investment banker's views of these matters? Because, if so,
22 I'll stop asking him, you know.
23 THE COURT: Well, I guess I'll allow it. Maybe we can
24 explore what the distinction or what he means by that
25 distinction or you mean by that distinction. So I will allow

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1 it I guess for now but I wanted to --
2 MR. ROBBINS: All right. I have a couple of questions
3 about this, and if it turns out to not be helpful to the Court,
4 I will of course stop asking.
5 BY MR. ROBBINS:
6 Q. You did focus on this provision, did you not, sir?
7 A. I think I focused on the 4.09(b)(v) and this related
8 definition for parts, yes.
9 Q. OK. And in particular, you focused on subsection 1 of the
10 PRI definition, right? That's on the screen in front of you
11 now.
12 A. Yes. I'm reading it. Thanks.
13 Q. The first phrase tells us that to constitute PRI, the,
14 quote, amount of the new debt may not exceed the amount of the
15 debt for which it is exchanged, right?
16 A. Yes.
17 Q. But then there is a proviso; am I correct?
18 A. The parenthetical?
19 Q. Yes.
20 A. Yes.
21 Q. And the proviso says that additional debt may be incurred
22 but only to the extent that the incurrence of additional debt
23 is used to cover one or more of the three components in the
24 parenthesis, correct?
25 A. Correct.

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1 Q. Now, in this case, am I right, Mr. McCarty, you understand
2 that two of the three items in the parenthesis were in this
3 transaction, the November 6 transaction, were paid for by cash,
4 in cash, right?
5 A. Yes, I believe so.
6 Q. Those are the accrued and unpaid interest, right, and the
7 such reasonable expenses, right?
8 A. Yes.
9 Q. All right. So no portion of the debt, you understand, was
10 used to pay either of those things, correct?
11 A. Correct.
12 Q. So that leaves us, sir, the third one: A reasonable
13 reasonably determined premium necessary to accomplish such
14 refinancing, correct?
15 A. Correct.
16 Q. Now, you offer the Court, do you not, in paragraph 59 of
17 your affidavit, your own definition of "premium."
18 MR. ROBBINS: Let's put that on the screen, shall we?
19 Q. And do you have it in front of you, sir?
20 A. I do.
21 Q. And you opine that premium is the value, if any, that
22 exceeds the, quote, mathematically or economically equivalent
23 value, end quote, of the bonds being refinanced, correct? Do I
24 have that right?
25 A. I'm just reading it again.

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1 (Pause)
2 Yes.
3 Q. So to be clear, as you understand the word premium, and as
4 you have explained it based on your experience to the Court,
5 the word premium refers to some value given to the bonds being
6 refinanced, not the face amount, correct? It's a value?
7 A. I don't think I'm interpreting the word in the Indenture.
8 I think I'm explaining the transaction and the word premium in
9 the transaction.
10 Q. From a banker's perspective?
11 A. Yes. Not from the Indenture, no.
12 Q. All right. In any event, from your banker's perspective, a
13 premium is the value -- is a value given to the bonds being
14 refinanced, correct?
15 A. The -- specifically, it's the economic equivalent value,
16 yes.
17 Q. And in this case, Mr. McCarty, you have opined that
18 Windstream provided no premium in the November 6 exchange, true
19 or false?
20 A. True. To the investors, it was a flat transaction. What
21 they gave and what they got I believe was equal.
22 Q. And you have seen the company's answers to interrogatories
23 in this case, have you not?
24 A. Yes. After I wrote my report, I was provided a copy. I
25 read it.

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1 Q. And it's in evidence as AX312.
2 Let's put that on the screen.
3 You've seen this, have you not, sir?
4 A. Yes, I have now.
5 Q. You have now? Did you not see it at your deposition?
6 A. I did. I am just stating that I hadn't seen it when I
7 wrote my report.
8 Q. And you see where Services states that, quote, No premium
9 was paid to noteholders in connection with the exchange offers,
10 right?
12 Q. And you agree with that, do you not?
13 A. In my economic interpretation of the trade that was the
14 series of exchanges, yes.
15 Q. Another interrogatory answer is in evidence as AX316.
16 Can we have that one, please?
17 You have seen this, too, have you not, sir? This is
18 Windstream's supplemental interrogatory answer in which they
19 say, "There was not a premium incurred in connection with the
20 issuance of the new notes, as the exchange ratios merely
21 compensated bondholders for extending such maturities and
22 exchanging into a lower coupon note." Correct? Do you see
23 that?
24 A. Yes, economically I agree with that statement.
25 Q. All right. And when you say "economically," what you are

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1 saying is that in your capacity as an investment banker
2 testifying as an expert for Windstream in this case, you think
3 that answer is true from your own perspective, yes?
4 A. Yes. From a market and economic standpoint, I agree with
5 that.
6 Q. And you still subscribe to that view as you sit here right
7 this second, right?
8 A. Yes. It was a flat exchange.
9 Q. And despite the fact that there was no premium, by your
10 lights, you conclude, again, from an investment banker's
11 perspective only, that the November 6 exchange still met the
12 PRI definition, correct?
13 A. Using that explanation of no premium because of the
14 economics of the exchange, there was no amount also, because
15 the amounts were equal.
16 Q. So glad you told me that. Let's go back to the definition,
17 because that's exactly where I wanted to go.
18 You just told me that you're not concerned about the
19 parenthetical because you conclude that the amount of the
20 indebtedness of the -- as a result of the transaction, the
21 amount of the new debt does not exceed the amount of the old
22 debt, so you are relying on the first clause of subsection 1.
23 And your opinion is the word "amount" means -- tell me if I
24 have this right -- that so long as it is what you call a flat
25 exchange and there is mathematical equivalence between the new

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1 notes and the old notes, the, quote-unquote, amount of the
2 indebtedness is the same?
3 A. I'm not interpreting the words in the Indenture here. I'm
4 just telling you from a corporate finance standpoint, the
5 mathematical equivalence applies to both the premium and the
6 amount. They are related -- they are interrelated.
7 Q. To be clear -- and, again, I understand you're not here as
8 a lawyer and you're not interpreting the Indenture, and the
9 Court doesn't want to hear from you on that anyway. That is
10 not the question.
11 You are here as an investment banker and you were
12 telling us that you think PRI is satisfied, notwithstanding
13 there being no premium, because the amount of the new notes and
14 the amount of the old notes are the same because in your view
15 they are mathematically equivalent, yes or no?
16 A. No, that's not what I was saying.
17 Q. OK. Then tell me what you are saying.
18 A. You asked me why I say that it is in compliance, and my
19 reasoning is because -- and I state in my report and in my
20 affidavit -- that the way you define premium doesn't matter in
21 terms of my interpretation of why it is in compliance. You
22 could define it purely from an accounting standpoint and say,
23 from an accounting standpoint, you issued new notes and from an
24 accounting standpoint you did the trade with a premium, it
25 would still be the same because the process that they went

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1 through in determining the transaction was sufficient.
2 Q. I have to confess, I'm totally baffled. Can I go back to
3 my question, Mr. McCarty?
4 We've -- you've agreed with me that there was no
5 premium by investment banker standards in this transaction;
6 have you agreed with me about that?
7 A. I've agreed.
8 Q. OK. Now, Mr. McCarty, I want to turn to where you went
9 after I asked you that; you talked about the amount. And
10 here's what I want to know. In the phrase, "The amount of such
11 permitted refinancing indebtedness does not exceed the amount
12 of the indebtedness so extended," etc., you believe, as you sit
13 here today, that in the November 6th exchange, the amount of
14 the new debt and the amount of the old debt was mathematically
15 equivalent and therefore the amounts were the same; is that
16 your opinion?
17 A. Yes. If you use my mathematically equivalent definition
18 for both premium amount, those are correct assumptions.
19 Q. OK. And you offered that opinion in your expert report,
20 did you not?
21 A. Yes, sir.
22 Q. And you offered it at your deposition, did you not?
23 A. Yes.
24 Q. You offer it in your affidavit, do you not?
25 A. Yes.

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1 Q. And you're offering it now, are you not?
3 Q. Did you ever, at any point, ask yourself whether the word
4 "amount" is defined in the Indenture?
5 A. Again, I'm not interpreting the Indenture and I'm not --
6 that is not applying to the Indenture, so, no. It's not a
7 capitalized word so I assumed it is not defined.
8 Q. You assume -- even as you sit here today, you assume it is
9 not defined?
10 A. In that sentence, no.
11 Q. Are you -- I'm going to show it to you in a minute, but I
12 just want to be sure I understand this.
13 Have you ever looked at the -- as you sit here today,
14 have you personally looked at the portion of the Indenture that
15 tells us what the word "amount" means in connection with
16 indebtedness?
17 A. I have seen it used in the definition with a small A, and I
18 have seen it used several other places with principal amount
19 and face amount.
20 Q. OK. Let me just show you what's in evidence as the
21 Indenture at page 21.
22 THE COURT: This is Aurelius Exhibit 1?
23 MR. ROBBINS: This is AX001, your Honor. This is the
24 6-3/8 Indenture.
25 THE COURT: Yes. I don't think it is in evidence as

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1 the Indenture. That's all I was saying.
2 MR. ROBBINS: Oh, OK.
3 THE COURT: Go ahead. All right.
4 MR. ROBBINS: It has got some number. I thought it
5 was AX001. At least on my crib sheet it has that number.
6 THE COURT: All right. Forget it.
7 BY MR. ROBBINS:
8 Q. You have seen this, right? You've seen the Indenture,
9 right?
10 A. Yes. And I've seen this phrase, yes.
11 Q. Did you see it only for the first time after I deposed you?
12 A. I can't recall when I've seen it. I have seen it several
13 times.
14 Q. Does the fact that the Indenture says the amount of any
15 indebtedness shall be 1 or 2, and 1 is where there is original
16 issue discount, which you agree there is no original issue
17 discount, right?
19 Q. So that leaves number 2. It shall be, quote, the principal
20 amount thereof, end quote. You see that, right?
21 A. I see that.
22 Q. Now, can you tell me whether the fact that we're looking at
23 these words and they're in the Indenture has any effect, any
24 gravitational force on your own personal opinion about what
25 "amount" means?

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1 A. In my definition of "mathematically equivalent," no, it
2 doesn't.
3 Q. It doesn't cause you to abandon your mathematical
4 equivalent business given the fact that the document actually
5 has a definition?
6 A. I'd leave that to the interpretation of the Court.
7 Q. OK. And, by the way, your belief that the new notes and
8 the old notes were mathematically equivalent, that's a belief
9 you hold as to every series of notes that were -- of old notes
10 that were exchanged into the new 6-3/8, right?
11 A. In the first exchange, that's what I'm focusing on, yes.
12 Q. So you believe that this mathematical equivalence and no
13 premium applies to the 21s, the 22s and the April 23s, right?
14 A. As it relates to historical trading spreads and yield to
15 maturities, the way I determine mathematical equivalence, yes.
16 Q. So that was a yes?
17 A. That was a corrected yes.
18 Q. Under your -- I just want to test the plausibility of your
19 own definition of "amount" as incorporating this notion of
20 mathematical equivalence.
21 Under that definition, am I right, Mr. McCarty, we
22 could have an exchange in which the new notes and the old notes
23 were mathematically equivalent even though the principal amount
24 of the company's indebtedness goes up significantly, right?
25 A. I don't -- I have trouble with the word "significantly." I

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1 don't -- I don't understand what the question is.
2 Q. Well, let's -- let me give you a hypothetical.
3 Let's suppose all the facts in the November 6 exchange
4 occurred exactly as they did. So, investment bankers are
5 involved and there are plenty of people in suits charging by
6 the hour and the company gets all this good advice but we're
7 going to change one fact. Instead of holding 6-3/8 coupon
8 notes, let's suppose Aurelius had held 2 percent coupon notes.
9 Are you with me?
10 A. Aurelius?
11 Q. Yes.
12 A. You mean, so there is no 6-3/8, there is only a 2 percent
13 they are exchanging into; is that what it is?
14 Q. I am changing the facts of the case. It is hypothetical.
15 I am changing the facts so that everything in this case is
16 exactly the same except one thing. Instead of the Aurelius
17 series being in 6-3/8 notes, they are in 2 percent notes.
18 Are you with me?
19 A. I think so.
20 Q. All right. Now, would you agree, sir, that in that event,
21 in order to dilute Aurelius' position, Windstream's
22 indebtedness at maturity would have gone up a good deal more
23 than the $40 million of principal amount that it went up in the
24 November 6 exchange; true or false?
25 A. It would have been more.

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1 Q. All right. In fact, I want to show you a demonstrative
2 that we've prepared. This actually comes from the report of
3 Dr. Sabry, in evidence -- I'm sorry, it is her affidavit.
4 Have you read her affidavit?
5 A. No.
6 Q. Well, I'll just ask you to take a look at it, in evidence
7 as AX319. It shows that at a 2 percent coupon, the amount --
8 the principal amount of new notes, depending on whether they
9 were the April 23s, the June 22s or the October 21s, would be a
10 great deal higher than the exchange ratios in the November 6
11 exchange, correct?
12 A. I guess that's what it says.
13 Q. And that comports with your own common sense, right?
14 A. I guess. I haven't given it a thought in terms of --
15 Q. All right. I want to just show you -- let's take a look at
16 the companion slide.
17 And here what we did, Mr. McCarty, is we calculated
18 how much more the principal amount of the debt would have been
19 if there were 2 percent notes instead of 6-3/8 notes. And you
20 will notice that it dwarfs the 40 million by a factor of, oh,
21 roughly eight and change, right?
22 A. I don't know what's behind the calculation of the 333 so I
23 can't really opine about any of it.
24 Q. I am not going to ask you to accept that these numbers are
25 correct. I am going to ask you to assume that these numbers

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1 are correct, and then I am going to ask you this question.
2 Assume with me, sir, that these numbers are correct
3 and that the company did everything else the same as it did in
4 this case -- got advice from professionals, asked the right
5 questions, all that good due diligence -- except that because
6 there were 2 percent notes, the amount of additional principal
7 indebtedness would go up by 333 million instead of 40 million.
8 My question to you is this: Assuming that the company
9 did everything else the same as it did in this case, would you
10 be telling His Honor that the definition of PRI was still
11 satisfied, based only on your investment banker background?
12 A. I have trouble with your hypothetical because I think your
13 333 is significantly wrong.
14 Q. OK. And maybe on redirect you will get a chance to show us
15 how that's true. But right now I'm asking you to accept that
16 Dr. Sabry figured this out correctly.
17 So assuming that the number is right but everything
18 else stays the same, now apply your mathematical equivalence
19 theory and tell the Court whether under this circumstance you
20 would still be saying that the amount that the PRI definition
21 was satisfied, yes or no?
22 A. I have trouble with your hypothetical because I can't form
23 any basis on it. I don't have any knowledge of it.
24 Q. I'm sorry. You can't answer my question?
25 A. No.

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1 Q. Is there a reason why you can't answer it today but you
2 answered the precise same question at your deposition?
3 A. You have now given me more detail on the Sabry example, and
4 with that detail, I don't think I can answer the question.
5 Q. What is it that I added to the hypothetical that makes you
6 today unable to answer it?
7 A. Because I don't think Sabry calculated the mathematical
8 equivalency on a trading basis the same way I do just from the
9 few numbers I saw, so it's different.
10 Q. OK.
11 THE COURT: Let me try this a different way.
12 I think you testified earlier that if everything else
13 were held constant but the rate -- the coupon rate was lower,
14 it was -- I mean, you could say 2 percent but, regardless, just
15 lower -- that the principal at maturity would have to be
16 greater?
17 THE WITNESS: That's correct.
18 THE COURT: All right. So that your testimony that
19 whatever that number is, whether that 333 is correct or not,
20 that your view would be that from an economic or banking
21 standpoint, that the amount of indebtedness in that scenario
22 would be the same as well?
25 MR. ROBBINS: Thank you, your Honor.

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1 BY MR. ROBBINS:
2 Q. So that means even if we don't have the exact numbers that
3 we can agree on, we can agree on this principle: That under
4 your view of what "amount" means, a company could greatly
5 extend its indebtedness, greatly increase its indebtedness, and
6 so long as it did all the due diligence that you think
7 Windstream did in this case, it would satisfy PRI; is that
8 correct?
9 A. Except for your word "greatly." Again, the amount is what
10 I'm having trouble with. But the theory, concept that the
11 Judge just gave me, I agree with.
12 Q. So are you saying that at some point great is simply too
13 great?
14 A. No. Just the methodology has to be correct.
15 Q. OK. Would you turn with me to paragraph 87 of your
16 affidavit, please.
17 THE COURT: I don't think -- paragraph?
18 MR. ROBBINS: Did I say page?
19 THE COURT: No. I think I misheard. Sorry.
20 A. The one starting on page 40 at the top?
21 Q. Yes, sir.
22 Do you have that in front of you?
23 A. I do.
24 Q. Now, I don't know whether -- I don't want to presume about
25 how much room you have and the logistics of doing this, but

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1 I'll tell you what I want to do is I'm going to hand you a
2 little package of yellow stickies to try and make this a little
3 easier.
4 MR. ROBBINS: Could I hand this up to the witness,
5 please, your Honor?
6 THE COURT: Sure.
7 (Pause)
8 MR. ROBBINS: I'll tell you what I want to do. Could
9 you -- I was literally going to say can you put a pin in it,
10 but what I am going to ask you to do is put a little one of the
11 yellow stickies on that paragraph 87. And then in your
12 notebook I want you to turn to your report, your expert report,
13 and what I want you to do there is put a yellow sticky on
14 paragraph 84. So, it's 87 of your affidavit and 84 of your
15 report.
16 A. Make sure I am on the right document: 84 paragraph is on
17 page 34 of my report?
18 Q. It appears to be 38 of your report. We may have -- you may
19 have these mixed up.
20 A. Yeah. That's why I'm asking for it.
21 THE COURT: I'll tell you what, Mr. Robbins. We are
22 going to take our afternoon break now. Maybe if you want to
23 just affix them in the meantime during the break so we can save
24 a few seconds when we return --
25 MR. ROBBINS: Sure.

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1 THE COURT: -- that might be helpful.
2 It is 3:35, so we will pick up at 3:45.
3 And, Mr. McCarty, you should be on the stand at that
4 time. Thank you.
5 THE CLERK: All rise.
6 (Recess)
7 THE COURT: You may be seated.
8 Mr. McCarty, you are still under oath.
9 And we will continue with cross-examination. You may
10 proceed.
12 BY MR. ROBBINS:
13 Q. Mr. McCarty, one of my colleagues apprised me that there is
14 a much more efficient and less -- certainly less cumbersome way
15 to do the comparison that I wanted to do because it turns out
16 we have a slide that does it for us.
17 So, can I ask Joe to put this up?
18 And let me just tell you what I have here. I've got
19 your affidavit, paragraph 87, the particular line, and then I
20 have the comparable passage from your expert report. Do you
21 see those, sir?
22 A. Yes.
23 Q. And can we agree, sir, that your -- that the way you
24 prepared your affidavit, at least in part, was to take the
25 paragraphs from your expert report and make certain revisions,

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1 correct?
2 A. I think I started with my report, yes.
3 Q. But in this instance, sir, you'll notice that there appears
4 to be at least some language difference in the way you
5 formulated a certain point, and I just want to find out if you
6 intended a substantive difference between the two.
7 You'll see that in your expert report, you wrote,
8 "Aurelius's purchases had a small but measurable effect on the
9 market price." Do you see that?
10 A. Yes.
11 Q. And then in your affidavit, you wrote, "Aurelius's
12 purchases had a likely material effect on the market price."
13 Do you see that?
14 A. I do.
15 Q. Did you intend those two passages to have a different
16 meaning?
17 A. I don't recall the difference between the two. It is a
18 long report. So the specific clause there, I don't remember
19 the difference --
20 Q. Well --
21 A. -- if any.
22 Q. I'm sorry. I didn't mean to interrupt you, sir.
23 A. I don't know that if I intended anything to be different in
24 the drafting. I did make corrections and wording changes in
25 the affidavit. This is one I don't recall.

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1 Q. So looking at these two passages, you are not able to tell
2 us whether the version that appears in the affidavit was
3 intended to communicate something different to the Court from
4 what was contained in your expert rebuttal report that you
5 served on us?
6 A. Not that I recall.
7 Q. All right. Let me ask you this, sir. You write -- let's
8 just focus on your affidavit. You write, "Aurelius's purchases
9 had a likely material effect on the market price."
10 What analysis, if any, did you conduct to reach that
11 conclusion?
12 A. Just my understanding of the market and looking at the
13 trading statistics.
14 Q. "The trading statistics," what do you mean by that, sir?
15 A. I looked at my Bloomberg machine and looked back at
16 historical trading.
17 Q. You understand, do you not, sir, that there are in fact
18 statistical techniques that professionals can use to assess
19 whether and to what extent bond purchases have an effect on
20 bond prices, correct?
21 A. Yes. And people in the bond market use their own
22 interpretation of the -- without the statistics, and that's
23 what I did.
24 Q. OK. So going back to my question, sir, the answer is that
25 you do understand that there are statistical techniques for

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1 actually measuring whether or not the purchases of a bond have
2 an effect, whether material or not, on market price; you
3 understand that there are such statistical techniques, do you?
4 A. I am aware of them. I'm not aware that they are anything
5 superior to people's judgment in the marketplace.
6 Q. Can you name any of the statistical techniques that are
7 used to determine that?
8 A. Not as a sit here today, no.
9 Q. Do you even know how to do it?
10 A. Do I know how to do it?
11 Q. Yeah. If you had wanted to use a statistical technique to
12 actually correlate, or to determine whether there was a
13 correlation, between Aurelius' purchases and the effect on
14 market price, would you know how to do that statistical
15 technique?
16 A. Not as I sit here today, I don't know. I would have to
17 look up and see in any of my past work, whether I have done
18 any. No, I don't recall any.
19 Q. Let's talk for a minute about the concept of mathematical
20 equivalence.
21 MR. ROBBINS: We can take down that slide, Joe. Thank
22 you.
23 Q. You have told us in your affidavit, paragraph 8 -- I think
24 we will put it up on the screen -- you've told us that setting
25 the terms of a mathematically equivalent exchange is more of an

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1 art than a science, is that correct?
3 Q. So I want to -- what I would like to do with you right now
4 is find out how abstract that art is.
5 So I'm going to take you through the steps that you've
6 told me you used to calculate mathematical equivalence. You
7 tell me if I've got this right. And, again, what we're trying
8 to determine now is whether two sets of bonds are
9 mathematically equivalent within your understanding of that
10 term; fair enough?
11 A. Fair enough.
12 Q. So the first step is that you take the difference in the
13 coupons between the old and the new notes, correct?
14 A. I actually don't buy the word "difference." You need to
15 know the coupons in both bonds.
16 Q. OK. And sometimes they're different, right?
17 A. But you don't take the difference. There is no subtraction
18 or mathematical --
19 Q. OK, that is my mistake. I didn't mean it as a subtraction
20 problem, but I apologize for the imprecise question.
21 You first look at the different coupons, correct?
23 Q. And then you make a calculation of the present value of the
24 different cash flows over time, correct?
25 A. No.

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1 Q. You do not do that?
2 A. That's not what you do separately. You do it as part of
3 the overall calculation of yield and maturity. So, you don't
4 calculate the difference separately.
5 Q. OK. But it is part of the analysis?
6 A. You need to know both coupons, correct.
7 Q. And then you have to calculate the dollar consequences of
8 extending maturities, correct?
9 A. Again, you don't calculate that separately. You calculate
10 that as part of the yield and maturity.
11 Q. That involves, does it not, sir, an interpretation of the
12 risk element of a bond, correct?
13 A. As represented by what you think the unaffected price is.
14 Q. And it may also entail the use of certain algorithms that
15 are available on Bloomberg, correct?
16 A. It might. It doesn't necessarily have to if you feel like
17 you have a good understanding of where the unaffected price is.
18 Q. OK. Then you would take that calculation and compare it to
19 the historical prices of the bonds, correct?
20 A. No.
21 Q. You would not do that?
22 A. No.
23 Q. Could I ask you to take a look at paragraph -- at your
24 deposition, sir.
25 A. Sure.

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1 Q. Page 115. I'm sorry. At -- yes, page 115.
2 A. I am on page 96, so I may have a different version.
3 Q. OK. I'm looking, sir, at -- the page number is in the
4 upper right-hand corner. This is in Tab 3 of your notebook.
5 A. Yes.
6 Q. And do you recall, sir, that --
7 A. Could you point me again? I am on the mini version so I
8 have different page numbers.
9 Q. The page should be exactly the same. It should be 115.
10 A. OK. Great. Thanks.
11 Q. And in particular, lines 2 through 11.
12 THE COURT: I think -- did you find it?
13 THE WITNESS: I did. Thanks.
14 THE COURT: OK.
15 BY MR. ROBBINS:
16 Q. And do you recall, sir, that I asked you: "So you have to
17 do two -- at least two mathematical inquiries, the present
18 discounted value of the difference in the coupons; right?"
19 And you said, sir?
20 A. I'm looking for where you were reading from.
21 Q. OK. Lines 2 through 11 on page 115.
22 A. Yes.
23 Q. Do you have that?
24 A. I do.
25 Q. And do you see that the first -- it began with my question:

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1 "You have to do at least two mathematical inquiries, the
2 present discounted value of the difference in the coupons;
3 right?"
4 And you said?
5 A. Correct.
6 Q. And then I said, "And then you have to figure out what
7 value is assigned to a longer maturity and, therefore, greater
8 risk; correct?"
9 And then what did you tell me?
10 A. And compared to historical prices, that's the input that I
11 just said you need. All the rest of it is fact.
12 Q. Did you tell me, sir, "and then there's usually a third,"
13 meaning third step, "which is you then take that calculation
14 and compare it to historical prices;" correct?
15 A. Correct.
16 Q. And that's the -- refers to the historical prices of the
17 bonds that you are deciding whether or not are mathematically
18 equivalent, correct?
19 A. That's the variable that is determined by people's
20 judgment, yes.
21 Q. And there is a fair amount of judgment, because this is an
22 art, not a science, right?
23 A. In determining that historical price, that is the part that
24 is hard. Every holder, every institution I talk to on these
25 situations has a different view of what the unaffected price

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1 is.
2 Q. And then at that point, it turns out there is yet another
3 step that a person has to take in order to determine
4 mathematical equivalence. Am I right, sir, you have to talk to
5 bondholders, socialize the issues, and take that input,
6 correct?
7 A. Yep.
8 Q. Correct?
10 THE COURT: Can I interject for one moment?
11 You have used the term "unaffected price" a few times.
12 Can you tell me what you mean by that?
13 THE WITNESS: Yes. When the offer was made in
14 October, there were several items that make it diverge from
15 historical pricing. One is the default risk, which was filed
16 on September 21st. So the spreads between the historical
17 prices, because we're comparing two different series, were not
18 comparable to what they had been in the past. So the judgment
19 factor that people make is after you fix the default, what type
20 of spreads are they going to go back to. And that's the art.
21 And everybody has a different view of it. Part of it
22 has to do with the risk of the company. Part of it has to do
23 with the risk of this case. But you go back to what the
24 historical spreads in everybody's different judgment would be,
25 and that's the main variable.

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1 THE COURT: All right. But "unaffected," at least in
2 the context of this case, means unaffected by the Notice of
3 Default?
4 THE WITNESS: That's principally it, yes.
7 BY MR. ROBBINS:
8 Q. So let me ask you, sir, this last step about -- again, just
9 to orient you, I'm trying to find out how much art this really
10 entails. It sounds like there is a great deal of judgment
11 involved, correct?
12 A. Everybody has a different view of risk, and that's what
13 makes markets. That's why there is buyers and sellers.
14 Q. So this last step of socializing the issues and taking the
15 input, you're talking about socializing the issues with
16 bondholders to get a sense of the market's appetite, correct?
18 Q. All right. So here's what I want to do, because I want to
19 understand this process of determining mathematical
20 equivalence, as you understand it. Have you yourself had
21 experience in this process of socializing that you are
22 referring to?
23 A. Sure.
24 Q. You've called bondholders to take their temperature and
25 figure out whether something is or isn't mathematical

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1 equivalent by their lights; you've done that?
2 A. Yeah.
3 Q. Many times?
4 A. Yeah.
5 Q. So here's what I'd like to do, because I'd like to
6 understand how it works. Let's imagine that you're in the
7 position that Stephen Cheeseman was in in this transaction.
8 You are not here as an expert, you are here as Mr. Cheeseman's
9 substitute. And I'm going to play a bondholder with whom
10 you're going to socialize this transaction.
11 Fair enough?
12 A. OK.
13 Q. Call me up. Tell me how you do it.
14 The phone is in front of you. Give me a ring.
15 A. Here we go. OK. I'm going to assume that you are holding
16 the bonds that mature in '21.
17 Q. Yep. I'm holding --
18 A. Seven-and-three-quarter percent coupon bonds maturing in
19 '21.
20 Q. Right.
21 A. And I'm asking you to exchange them into 6-3/8 due in '23.
22 Q. Yep. Call me up. Try and sell me.
23 A. And I'm going to say, I'm offering you 110 on that
24 exchange.
25 Q. And I'm going to say, 110, you've got to be kidding me?

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1 A. And what I'm going to say is I think that unaffected, that
2 bond you hold is going to trade 820.
3 Q. I just don't agree with you, sir.
4 A. Well, let me go --
5 Q. I'm not going to do that.
6 A. Let me go through it and let's assume I'm right. The bond
7 we know, the 6-3/8, trades at 7.50. The yield at maturity on
8 those two is 13.75 together, both of them. So, that's a flat
9 exchange. I think you ought to take it because you're a
10 holder, you want to see the company do well, and what you give
11 me is what you're going to get back equal.
12 Q. I'm sorry. I'm sorry. Mr. McCarty, I've got to tell you,
13 I'm holding these 21s and I got a call from this lawyer over at
14 Willkie Farr & Gallagher. And you know what he told me? Have
15 you heard what he told me?
16 A. It actually was a woman at Strickland.
17 (Laughter)
18 Q. Have you heard what she told me?
19 A. I heard a lot of stuff she told --
20 Q. She told me that I could get together with two or three
21 other large holders as big as I am and we could hold value for
22 really better convenance, we could hold out for a higher
23 coupon. And guess what? She told me she can get Windstream to
24 make a special deal where they will pay down $150 million of my
25 notes, my eight-and-three-quarter notes due 2024, they'll pay

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1 them down in the first three or four months in February 2018,
2 they're going to pay down $150 million. Why wouldn't I hold
3 out for that?
4 Your turn.
5 A. Well, that is a second exchange. By then I've already
6 gotten my first exchange done and I'm very happy. Thank you.
7 Q. You've got to hope they are.
8 (Laughter)
9 You've got to hope you're right, my friend, because
10 I'm holding -- I'm holding a very big position.
11 THE COURT: Mr. Robbins, I gave you some latitude here
12 really because I was hoping to figure out if your ring tone was
13 as creative as Mr. Friedman's.
14 Let's get back to the more conventional
15 question-and-answer format.
16 MR. ROBBINS: All right.
17 THE COURT: Thank you.
18 BY MR. ROBBINS:
19 Q. Let me just ask you this, sir.
20 In the -- have you been given the judgment involved
21 and the complexities of negotiations, as I've tried haplessly
22 to recapitulate today, who would you say the art more
23 resembles, Rembrandt or Jackson Pollock?
24 A. I'm not an art critic so I couldn't tell you the
25 difference.

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1 THE COURT: I think it's Monet versus Manet is the
2 famous example, but all right.
3 BY MR. ROBBINS:
4 Q. All right. Let me change topics just a little bit with
5 you.
6 Even though, Mr. McCarty, you have opined that
7 Windstream did not pay a premium on the November 6th exchange,
8 you also offer the view that if there was a difference between
9 the value of the new notes and the value of the old notes, and
10 such difference is called a premium, that premium was
11 reasonably determined and necessary to accomplish such
12 refinancing; you have offered that opinion, have you not?
13 A. Yes, very clearly.
14 Q. And your view, sir, is that -- well, is it your view, sir,
15 that whether or not there was a premium, the
16 November 6th exchange was permitted under the Indenture because
17 the transaction was reasonable and necessary; is that your
18 opinion?
19 A. Well, I'll start with the first piece that you asked me,
20 which is, yes, that was my opinion, that even if there was a
21 premium involved and you take the accounting definitions, the
22 reason I have that opinion is because the process they went
23 through and the pricing they went through was a reasonable
24 process which was necessary to close the transaction.
25 Q. So your understanding -- I just want to make sure I

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1 understand what you think "reasonable" and "necessary"
2 modifies. Your opinion is that if the transaction is
3 reasonable -- reasonably determined and necessary, it therefore
4 passes muster?
5 A. No. I think I was answering your question about premium.
6 The modifiers there in the question you asked me was premium,
7 not transaction.
8 Q. All right. And the reason you believe that, assuming that
9 the increase in indebtedness were called a premium for some
10 reason, your view is that it's necessary because the company
11 absolutely had to neutralize Aurelius in order to gain access
12 to the capital markets; that's what you believe?
13 A. Well, they needed access to the capital markets, but the
14 necessary part was because investors wouldn't give up their
15 securities for something that wasn't at least equivalent.
16 That's the necessary part.
17 Q. So what I want to do is I want to drill down a little bit
18 on your belief that the Notice of Default deprived Windstream
19 of access to the capital markets, a point you make in your
20 paragraph 40 of your affidavit.
21 What you really mean, sir, when you say that is access
22 to the capital markets on what you deem to be, quote,
23 reasonable terms, correct? Is that correct?
24 A. I'm not sure -- I did use the word "reasonable." But
25 unreasonable means unsustainable, that they couldn't continue

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1 their business. I think that if they didn't gain access in
2 short order to the capital markets, Windstream would be forced
3 into bankruptcy. That's what I believe I meant.
4 Q. Well, I want to direct your attention to one of the changes
5 you made from your report when you turned it into an affidavit.
6 MR. ROBBINS: Could I put up, I guess it is slide 29?
7 Q. Now, this is from your report, paragraph 67. Do you recall
8 that you wrote in your report, "No one in my judgment would in
9 their right mind lend to a company facing that threat," by
10 which you mean the threat of a default, correct?
11 A. Yeah. An imminent default, that's correct.
12 Q. And you said "No one" -- in your report you told us that
13 "No one in my judgment would in their right mind lend to a
14 company facing that threat."
15 What I want to do now is show you what became of that
16 sentence when you turned it into your affidavit.
17 MR. ROBBINS: Can I have slide 30, please?
18 Q. Now, in this iteration, you'll see, Mr. McCarty, that you
19 added some words.
20 A. Yes.
21 Q. It now reads: "No one in my judgment would in their right
22 mind lend to a company facing that threat, at least using
23 conventional debt instruments on normal terms."
24 Do you see that?
25 A. I do.

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1 Q. Can you tell me -- first of all, when did you make that
2 change?
3 A. Just before I submitted -- I think I was responding to
4 questioning that you had had of me in the deposition that was
5 trying to parse my opinion about access to the capital markets.
6 Q. And, sir, did you intend the sentence as revised in your
7 affidavit to communicate something different from what you had
8 written in paragraph 67 of your report?
9 A. No. I think I'm just enhancing it to say they might have
10 been able to get financing, but it probably wouldn't be
11 survivable financing, it would be financing that would
12 ultimately result in the company having to file bankruptcy.
13 Q. Is that what you wrote in 61?
14 A. I think my addition of the clause "at least using
15 conventional debt instruments on normal terms" implies that,
16 yes.
17 Q. I see. OK.
18 Now, in forming your opinion that Windstream could not
19 obtain capital market access on reasonable terms unless it did
20 the November 6th exchange, I'm right, am I not, sir, that you
21 didn't interview any Windstream personnel about that, did you?
22 A. I was just relying on my own knowledge of the market and
23 telecommunication companies.
24 Q. So is that a no, you didn't?
25 A. Nope.

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1 Q. OK. But you did review board presentations and board
2 minutes to inform your opinion, did you not, sir?
3 A. I did.
4 Q. And when you did that, you noticed, did you not, that there
5 is some contrary evidence about whether Windstream had access
6 to the capital markets in the wake of the default notice,
7 correct?
8 A. I saw references to a postponed $250 million offering. I
9 don't remember any other contra evidence.
10 Q. Well, you've seen evidence, have you not, that even after
11 rumors of the Aurelius Default Notice surfaced, Windstream
12 management still believed that it had multiple levers available
13 to address its outstanding debt, correct?
14 A. You would have to point me to a specific phrase. I don't
15 remember that.
16 Q. All right. Well, let's take a look at Windstream Exhibit
17 183, in evidence.
18 Sir, do you recognize this as a Windstream Board of
19 Directors presentation for a Board of Directors meeting of
20 September 22, correct?
21 A. Yes. I think that was the day after the Default Notice was
22 filed.
23 Q. And several weeks after the rumors surfaced of a threatened
24 default notice, correct?
25 A. Yes, I think so.

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1 Q. And in this board presentation, you'll notice that
2 Windstream told its board, among other things, that it had,
3 quote, multiple levers available to deal with its current debt,
4 correct?
5 A. Yeah. I don't know when it was -- this was drafted,
6 whether they took into account the actual filing or whether it
7 continued on. I'm not sure.
8 Q. All I ask, sir, is whether you see that it says that there
9 were multiple levers available, and you do see that, don't you?
10 A. I do see that.
11 Q. And you see that this was a September 22nd presentation to
12 the board, right?
13 A. Yes, the day after the default.
14 Q. Which, as you just told me, is the day after the company
15 received the Default Notice, correct?
17 Q. But you told me, did you not, that in September 2017,
18 Windstream did not have multiple levers available to address
19 its refinancing needs; do you remember that?
20 A. I totally agree with that statement.
21 Q. And that's probably, sir, because as of the time of your
22 report, when you formed the opinions that you still hold today,
23 neither more nor less, you had not actually seen the
24 September 22nd document or considered it, isn't that correct?
25 A. I -- you know, I don't remember I read -- I started looking

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1 at their board of director reports and presentations in 2013, I
2 think it was, and I thought I looked through all of them. But
3 my opinion is built on the fact that I've gone through maybe
4 four dozen bankruptcy cases and advised companies, and I don't
5 think the company had access.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

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1 Q. Again, sir, I just want to go back to my question, which
2 was, in case you've forgotten it, isn't it the case, sir, that
3 at the time when you wrote your report, you had not actually
4 seen the September 22nd board of directors meetings in which
5 the company told -- its management told its board of directors
6 that it had a variety of levers to deal with its outstanding
7 debt? Isn't it true, sir --
8 A. I don't -- I don't recall.
9 Q. Sir, isn't it true -- I'm sorry. I hadn't finished. Isn't
10 it true that you had not actually seen Windstream Exhibit 183
11 at the time of your deposition?
12 A. I can't say for certain. I thought I had reviewed all the
13 board minutes, but I can't remember.
14 THE COURT: Your question shifted from the report to
15 the deposition, so --
16 MR. ROBBINS: I'm sorry. I may have misspoken.
17 Q. Isn't it true, sir, that at the time of your report you had
18 not seen the September 22nd presentation?
19 A. Again, I don't recall the this specific one. I thought I
20 had reviewed them all.
21 Q. In fact you told me you reviewed this one.
22 A. I thought I, as I said, I thought I reviewed them all.
23 Q. In fact this one isn't listed as a document you considered,
24 is it?
25 A. I may have missed it in my listing of consideration. I

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1 don't know what --
2 Q. Well, actually, you didn't, because it turns out it wasn't
3 given to us until a day or two days after your report. Let me
4 show you, if I might, slide 33. Do you see the date, sir, on
5 which we received this in discovery?
6 A. Is that the date of the e-mail?
7 Q. Yes, sir.
8 A. I do.
9 Q. And this is three days after you wrote your report.
10 A. That's right.
11 Q. So in your report, if you said in your deposition that you
12 actually had reviewed it, that could not be true because, sir,
13 you also told me earlier in today's examination that you did
14 not rely on any documents that had not yet been produced in
15 discovery.
17 Q. So we can agree, sir, that when you formulated your opinion
18 about whether or not Windstream had access to the capital
19 markets in the wake of the default notice of September 21, we
20 can agree that you were not reckoning with what Windstream's
21 management actually said to its own board the day after the
22 default notice was received.
23 A. If I hadn't seen it then, that would be correct.
24 THE COURT: Do you, sitting here, know what day that
25 particular exhibit was produced?

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1 A. I don't. I thought I said -- I thought I reviewed every
2 board presentation for three and a half years.
3 THE COURT: But is it the case that, as of the time of
4 your report, you had only reviewed materials that had been
5 produced in discovery in this case?
7 THE COURT: OK.
8 Counsel, I would like agreement if possible on what
9 date this was produced, since Mr. McCarty is not in a position
10 to testify to that.
11 MRS. KARIS: We will confirm that, your Honor.
12 One thing I would note is there are board minutes that
13 go to this presentation.
14 THE COURT: All right. You'll have an opportunity for
15 redirect. But I still want agreement on that, since it's not
16 something that this witness can testify to.
17 MRS. KARIS: Absolutely.
18 BY MR. ROBBINS:
19 Q. One last line of questions, Mr. McCarty.
20 MR. ROBBINS: You can take that down, Joe.
21 Q. I want to turn back to your qualifications, sir, to testify
22 as an expert. It is a fact, sir, that one of the questions
23 I've asked you in the past is whether a court -- well, let me
24 just ask you now, rather than -- forget what I said in the
25 past. Has a court ever, for any reason, excluded some or all

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1 of the trial testimony that you intended to give in a case?
2 A. No, not that I recall.
3 Q. You testified in a case called In re Claymore Holdings,
4 correct?
6 THE COURT: Spell Claymore, please.
7 MR. ROBBINS: Claymore, C-l-a-y-m-o-r-e.
8 Q. That was before Judge Tillery. Correct?
10 Q. And I want to ask you to take a look, I think in your
11 binder. Find AX 909, sir. You'll notice this is a transcript
12 of the Claymore case. Do you see that?
13 A. Yes, I do.
14 Q. Could I ask you to take a look at pages 6 through 8 of this
15 transcript, read it to yourself.
16 Actually, I will just make it simpler. I've
17 highlighted some sections on the screen in front of you, sir.
18 Mr. McCarty?
19 A. Yes.
20 Q. And you see there was a lawyer named Mr. O'Connor. Do you
21 remember him?
22 A. I don't remember Mr. O'Connor, no.
23 Q. In any event, Mr. O'Connor gives, does he not, sir, a
24 proffer of what you would be able to testify to if permitted.
25 Do you see that?

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1 A. Yes.
2 Q. And then the court gives a ruling on whether you will be
3 allowed to give the opinions that the lawyer proffered. Do you
4 see that?
5 A. Yes.
6 Q. Let's turn to the next slide, please, shall we. And do you
7 see, sir, that the court, Judge Tillery in the Claymore case,
8 said, "The Court has previously excluded the opinion because it
9 was not fairly disclosed in the discovery request and the
10 expert opinion report or report of opinion. The Court does not
11 feel like that opinion was disclosed, nor was the basis for
12 such opinion fairly disclosed." I take it, sir, you did not
13 know of Judge Tillery's ruling when you were deposed. Is that
14 right?
15 A. It didn't relate to my report. I remember the
16 circumstance. And the counsel for Weil Gotshal in this case
17 asked that I had personal opinion involving Highland and asked
18 the Court if I could proffer my opinion on that personal
19 experience, and they said it was unrelated to my report.
20 Q. I'm sorry. Do you remember that the predicate question
21 that I had asked you was whether a court ever, for any reason,
22 excluded some or all of the trial testimony that you intended
23 to give in a case, and you answered no. Correct?
24 A. No.
25 Q. And here is an example of a court which, for a reason,

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1 excluded some of your opinions. Right?
2 A. No. These weren't my opinions, in my report or my
3 presentation. This was additional material that counsel for
4 Weil Gotshal asked the Court to see if I could step in and
5 speak to, and they said no. So these weren't opinions that I
6 expressed or provided.
7 Q. I see. When I asked you that question at your deposition,
8 did you actually think to yourself, I can say no because this
9 wasn't an opinion that I was intending to give, it was just an
10 opinion that Weil Gotshal wanted to add to my testimony, so I
11 can say no to the question? Was that actually the operation of
12 your mind when I asked that question?
13 MRS. KARIS: Objection.
16 Q. I also asked you, do you recall, sir, that you listed the
17 Claymore case as one in which you gave a deposition. Correct?
18 A. Yes, I believe so.
19 Q. And in fact you told me that, at your deposition, that it
20 was a several-hour deposition. Correct?
22 Q. You said you couldn't remember the name of the lawyer who
23 deposed you in that case. Do you remember that?
25 Q. If I told you that the lawyer's name was Lisa Sye, would

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1 that refresh your recollection?
2 A. No.
3 Q. Well, I'm going to represent to you that she is the lawyer
4 who examined you at trial and would have taken your deposition
5 if you had given one, but I'm going to ask you to just take a
6 look, to yourself, at AX 910 in your binder, which is a letter
7 from Ms. Sye to my colleague, Wendy Liu. And I'm not putting
8 it in evidence, so we don't need to put it on the screen, but I
9 just want you to read it to yourself and then tell me when
10 you're done whether in fact you are still prepared to swear
11 that you gave a several-hour deposition in that case.
12 A. I'm pretty sure I gave a deposition, and I gave trial
13 testimony in Dallas on it. So that's my recollection.
14 Q. Did you have a chance to read Ms. Sye's letter?
15 A. I did just now, yes.
16 Q. Does it refresh your recollection that maybe you gave trial
17 testimony but you never sat for a deposition, whether it was
18 several hours or otherwise?
19 A. No. I don't recall ever going to give trial testimony
20 without a deposition.
21 Q. OK. All right. You can set that to the side.
22 Now, sir, let me ask, you have appeared throughout
23 your career, am I right, Mr. McCarty, as an expert witness in
24 multiple cases?
25 A. Yes, I think something around a dozen or something.

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1 Q. Mr. McCarty, do you need a bottle of water?
2 A. Got one. Thanks.
3 Q. Still got yours?
4 And you've also appeared as a fact witness in some
5 cases, correct?
6 A. I have, yes.
7 Q. And you appeared as an individual litigant in some cases,
8 correct?
9 A. Yes. I've been a plaintiff and a defendant in several
10 cases.
11 Q. So let me ask you, sir, taking all those capacities as a
12 whole, expert testimony, fact witness testimony, individual
13 litigant appearance, no matter what context you've appeared,
14 whether as a fact witness, expert witness, or individual
15 litigant, has any judge, in any case, subjected you, sir, to
16 criticism or sanction or penalty in any of those capacities?
17 A. I don't understand the terminology. If you could explain
18 it to me.
19 Q. Sure. I'm asking you, rather than break this down into all
20 the different categories, I'm asking you about all these
21 contexts: expert appearance, fact-witness appearances,
22 personal-litigant appearances. OK? You with me?
23 A. Yes.
24 Q. Now, taking all of those capacities as a whole,
25 Mr. McCarty, has any judge ever subjected you to criticism,

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1 sanction, or penalty?
2 A. Not that I recall, no.
3 Q. Are you certain of that?
4 A. As I sit here today I don't recall them, but I've been a
5 witness a lot of times and with the collection of all those
6 different positions.
7 Q. Well, let's take one of them. Let's talk about your expert
8 appearance in In re Global Energies LLC. That's one of the
9 cases in which you appeared as an expert?
10 A. Yes, last July.
11 Q. That was in Florida, was it not, sir?
12 A. Yes, in bankruptcy court in Florida.
13 Q. And the bankruptcy judge is the Honorable Raymond B. Ray,
14 is he not?
16 Q. Have you seen Judge Ray's ruling of June 25th in that case?
17 A. No, I've not.
18 Q. Why don't you take a look at AX 911 in your binder. This
19 is the case in which you appeared, correct?
20 A. Yes, for Mr. Wortley.
21 Q. Southern District of Florida, correct?
23 Q. Is this the first you're seeing this decision, sir?
24 A. Yes. I have not seen it. As I said, new to me.
25 Q. But it is the case in which you appeared for Joseph G.

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1 Wortley, the complainant, correct?
3 Q. Turn to page 31 of Judge Ray's opinion. Do you see that,
4 sir?
5 MR. ROBBINS: Could we get page 31 up.
6 A. Yes, I do.
7 Q. Do you see it turns out that Judge Ray disregarded your
8 valuation because the court found that your valuation was
9 unreliable, speculative, irrelevant, and revealed your bias and
10 prejudice. Do you see that?
11 A. I see that, yes.
12 Q. Next page. Do you see that the judge went on to say that
13 even if the court found the valuation relevant, the court found
14 that "Mr. McCarty's valuation was unreliable and unreasonably
15 speculative." And then the judge gives some reasons. Do you
16 see that?
17 A. I see that.
18 Q. Next grab. The judge says that "Mr. McCarty's disregard
19 for whether Global Energies -- an alternative energy company --
20 had access to the alternative energy technology makes
21 Mr. McCarty's valuation completely unreliable." Do you see
22 that?
23 A. I see that.
24 Q. I take it you knew none of these things at the time of your
25 deposition?

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1 A. No, not -- I think I see it's a -- this was produced on
2 June 25th, 2018.
3 Q. Yes, sir. A little more than a month ago.
4 Next quote. The judge goes on to indicate that you
5 "failed to consider the objectives of the investors,
6 disregarded the super-majority requirement," and he says,
7 "Incredibly, Mr. McCarty was not aware of the deadlock in
8 Global Energies when preparing his expert report." Do you see
9 that?
10 A. I see that, yes.
11 Q. Now I will turn to the last one of these.
12 Judge Ray goes on to say that "even if the Court would
13 find the valuation relevant and reliable, the Court would still
14 refrain from utilizing Mr. McCarty's opinion because his
15 testimony revealed his bias in favor of Mr. Wortley and
16 prejudice against the defendants." Do you see that?
17 A. Yes, I see that.
18 Q. And isn't it true, in fact, that you and Mr. Wortley, as
19 the judge points out, were longtime friends, having met going
20 golfing in Bermuda in 1996. Do you see that?
21 A. That's where I met Mr. Wortley first, yes.
22 Q. Is it true that the Judge finds that you were not a neutral
23 party because you disclosed in your testimony and outlined in
24 detail in your demonstrative exhibit how Mr. Wortley had
25 actually approached you personally, early in 2009, with the

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1 intent to hire you as an investment banker in this very
2 transaction?
3 A. Yes. That's what I disclosed. It was true.
4 Q. You even had an investment letter and a draft agreement
5 with one of the parties, Global Energies and SES, for whom you
6 served as an investment banker. Correct?
8 Q. And then you appear as an expert notwithstanding those
9 personal connections. Correct?
10 A. No. Those were disclosed connections.
11 Q. But connections nonetheless, correct?
12 A. Absolutely.
13 Q. All right. You can set that aside.
14 I just, I have one last bit of this, Mr. McCarty. And
15 I'm not going to put this on the screen. I'm just going to
16 direct your attention to AX 912 in your notebook. Just look at
17 it yourself. And I'm not going to describe in open court the
18 content in any way. I just want you to personally look at it,
19 look at what it says, and then tell me again whether it is
20 true, as you said today and as you said at your deposition,
21 that no judge has sanctioned you or penalized you in any
22 capacity. You don't have to tell us the context, the details.
23 I'm not going to do that either. I just want to know, true or
24 false, that you have in fact been sanctioned and held in
25 contempt.

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1 A. I'm obviously familiar with the case. I didn't view it as
2 held in contempt. I didn't realize I was held in contempt,
3 unless I'm misreading it. The --
4 Q. Were you not aware of the order to which I've directed your
5 attention, sir?
6 A. No, I'm aware of the order. Obviously I was in the court
7 and --
8 Q. Were you aware of the order of the court in that case when
9 I asked you that question only moments ago?
10 A. Yes.
11 Q. Were you aware of the order in that case when I took your
12 deposition on this very question?
13 A. Yes.
14 Q. Did it cross your mind that that order might be responsive
15 to my question?
16 A. No. I didn't think so.
17 Q. Would you take a look at AX 913, which is the attorney's
18 fees award against you in that case, as a further sanction for
19 the conduct reflected in AX 912. Do you see that?
20 A. Yes.
21 Q. This reflects your having to pay the opposing litigant in
22 that case the attorney's fees incurred for having to press the
23 matter that resulted in a contempt sanction. Correct?
24 A. Yes. It's a payment of attorney's fees, correct.
25 Q. And you did pay attorney's fees in that case, the one we're

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I7PAUSB6ps McCarty - Redirect
1 adverting to right now, correct?
2 A. Yes.
3 Q. And you knew you did, didn't you?
4 A. Sure. Yes.
5 Q. You didn't regard that as a penalty or other sanction for
6 appearing in one capacity or another, when I asked that
7 question just a little while ago?
8 A. No, I didn't.
9 MR. ROBBINS: OK. Your Honor, I think I pass the
10 witness.
11 THE COURT: Redirect.
13 May I approach to hand the witness his notebook?
15 MRS. KARIS: I believe the Court already has it.
17 BY MRS. KARIS:
18 Q. Mr. McCarty, I want to ask you some follow-up questions
19 regarding the issues in this case. But before I do that, you
20 were asked a number of questions there, just last line of
21 examination, by Mr. Robbins regarding a particular order that
22 we were looking at. Do you recall that?
23 A. I do.
24 Q. And without going into the details of that particular
25 order, did that involve a personal dispute between yourself and

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1 your former spouse?
2 A. It did.
3 Q. Did that have anything to do with any expert opinions that
4 you have offered anywhere in the country?
5 A. No.
6 Q. Did that have anything to do with any work that you've ever
7 done in connection with investment banking work?
8 A. No.
9 Q. And so, last question on this: the order Mr. Robbins was
10 just referring to, was that a dispute arising from a marital
11 dissolution?
12 A. Yes.
13 Q. Otherwise known as a divorce?
15 Q. OK. Let's go back to the issues in this case.
16 MRS. KARIS: If we can pull up Exhibit WIN 183.
17 Q. Do you recall Mr. Robbins showed you these board minutes --
18 strike that -- this deck that was attached to board minutes,
19 and it's dated September 22nd of 2017? Do you recall that?
20 A. I do.
21 Q. And if we can go to the next page that Mr. Robbins was
22 reading from that referenced having multiple levers to pull.
24 A. I do.
25 Q. All right. Let's skip a page back. First of all, while we

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1 find that page --
2 MR. ROBBINS: Oh, I'm sorry. I think it's page 20.
3 MRS. KARIS: Thank you. Thank you very much.
4 Q. Page 20. Just to reorient ourselves -- I'm sorry. Can we
5 go back to the page that just had the time on it at the top
6 there. The time of the board meeting that took place was
7 September 22nd at 9 o'clock in the morning. Correct?
9 Q. And when did Aurelius's notice of default get sent to the
10 company, if you know?
11 A. I think it was the night of the 21st.
12 Q. And so this board deck that we've been looking at, that
13 referenced multiple levers to pull, to access the capital
14 markets on conventional terms, as you noted, do you know
15 whether this board deck was prepared before the notice of
16 default ever arrived at Windstream?
17 A. I would suspect so. Boards usually get packages prepared
18 for them before the hearings -- or the meetings.
19 Q. Now, you indicated -- you testified that you had reviewed
20 board minutes that went -- that were produced in this case.
21 Correct?
23 Q. Let's look at the board minutes that went to this deck,
24 which is WIN Exhibit 074.
25 By the way, Mr. Robbins indicated that you didn't

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1 receive these until after you received -- I'm sorry -- after
2 you produced your report. And we will definitely find the date
3 for the Court when they were produced. But I will represent to
4 you that the minutes that we're looking at were produced before
5 the board deck and in time for your report.
6 Now, the minutes from that September 22nd meeting, if
7 we can look at page 4 -- and, again, this is a board meeting
8 the day after -- the morning after the notice of default has
9 been received. And if we can call up the sixth agenda time --
10 actually, I'm sorry, before we do that, if we could look at
11 page 3, middle of the page, and if you will call out where it
12 begins, it says "Ms. Moody informed the board."
13 It states, "Ms. Moody informed the board that
14 immediately prior to the start of the meeting, Services
15 received a notice of alleged default of a certain indenture
16 governing the 6.375 percent senior notes due 2023, from
17 Aurelius Capital Master, Ltd. ('Aurelius'), a bondholder and
18 activist hedge fund." Do you see that?
19 A. I do.
20 Q. And it goes on to say that "the notice primarily asserted
21 that the REIT spinoff constituted a sale-leaseback transaction
22 that was not permitted under certain indenture covenants." Do
23 you see that?
24 A. I do.
25 Q. And the question was whether the board minutes and the

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1 evidence was contrary to the opinion that you gave that there
2 was no lever to -- no reasonably available capital in the
3 capital markets. Do you recall that?
4 A. I do.
5 MR. ROBBINS: Objection. That was manifestly not my
6 question.
7 MRS. KARIS: OK. Let me withdraw that one.
8 Q. Let's go to the sixth agenda item. Next page. Thank you.
9 Can you tell us, at that board meeting, on September
10 22nd of 2017, what it is Mr. Thomas, the CEO of the company,
11 advised the board.
12 A. This is the reference I made to Mr. Robbins that my
13 recollection of that board meeting was a postponement of the
14 $250 million planned financing because of the Aurelius filing.
15 Q. Did you see anything contrary in the record to indicate
16 that there was some additional reasonable debt instrument in
17 the capital markets that the company could access at this time?
18 A. Absolutely not.
19 THE COURT: Do you know if you considered that, the
20 board minutes, that exhibit, in connection with your report?
21 THE WITNESS: Yes. I remember reading it because I
22 remember the reference that Mr. Thomas made. So, yes, I did
23 take it into consideration.
24 Q. Now, different topic. Mr. Robbins asked you about a
25 hypothetical where you showed you a chart from Dr. Sabry's

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1 report with a 2 percent coupon rate as opposed to the 6 3/8.
2 Do you recall that line of questioning?
3 A. I do.
4 Q. And I believe you testified you did not read Dr. Sabry's
5 report. Correct?
7 Q. Dr. Sabry opined on what she thought was -- you were
8 here -- what she thought was the net benefit coming out of this
9 transaction. Do you recall that?
10 A. I do.
11 Q. There is a different expert in the case, Dr. Garcia --
12 Mr. Garcia, excuse me -- that you were responding to. Correct?
14 Q. In addition to offering other opinions to this Court
15 relating to the pricing of the bonds and the reasonableness of
16 that pricing. Correct?
18 Q. Now, you were asked, in connection with that hypothetical
19 that was posed to you about paying 2 percent, how you viewed
20 that 2 percent delta, if you will, that showed that chart with
21 over $300 million of additional debt being incurred. Do you
22 recall that?
23 A. I do.
24 Q. Now, a permitted refinancing, a PRI indebtedness provision,
25 is that a common provision in indentures, as you understand it?

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1 A. Almost always, yes.
2 Q. And you were asked then in connection with the language of
3 the PRI whether that's referring to some principal or face
4 amount. Do you recall that question?
5 A. I do.
6 Q. Now, you testified in response that, to you, the language
7 in the PRI is not referring to a face amount. Is that correct?
8 A. In the parenthetical, very definitely.
9 Q. And I want to take the hypothetical, then, that was
10 presented to you, that, assume a company has a hundred million
11 dollar note, with 5 percent bonds. OK?
12 A. OK.
13 Q. And then assume that they exchange those notes for a
14 hundred million dollars, that they had for a hundred, for notes
15 that are a hundred million, but now they give a 20 percent
16 coupon bond with the same maturity date. Are you with me?
17 A. I am.
18 Q. Has the face amount remained the same?
19 A. Yes.
20 Q. Now, in that situation, would you, using your analysis,
21 consider the company to have issued an amount of debt that
22 satisfies the PRI from your perspective as an investment
23 banker?
24 A. No.
25 Q. Why not?

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1 A. The differential in the interest rates is so substantial,
2 with everything else the same, it would be, you know, an
3 obvious calculation to be different.
4 Q. And so when you say that amount and premium to you are
5 interconnected, as your understanding of PRI, explain what you
6 mean.
7 A. In my definition of mathematical equivalence, it goes to
8 the determination of whether there is a premium, and it goes to
9 whether there is an amount. You could take the other side of
10 it and say, I'm just going to use accounting numbers, and you
11 could do the accounting numbers, and there would be a premium
12 and there would be an amount. So it's mixing and matching. If
13 you want to pick premium on mathematical equivalence and amount
14 using accounting, that's two different concepts mixed up that
15 can't be logically put together.
16 Q. When you were assessing from, again, from an investment
17 banker's perspective, whether the permitted refinancing
18 indebtedness provision was satisfied in this case, how were you
19 assessing it?
20 A. From a mathematical equivalent basis on both.
21 Q. And what did you find?
22 A. I found that there was no premium and no amount, because
23 they were mathematically equivalent across the exchanges.
24 Q. In reaching that conclusion and finding, how many years of
25 experience do you have in this industry?

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1 A. I did my first data offering in 1977. And I've done them
2 every year since.
3 Q. And in particular, does your experience pertain to the
4 telecommunications industry?
5 A. Yes. A majority of my transactions over -- since 1978 have
6 been in telecom broadly defined.
7 Q. Is it important to you to have a background in
8 telecommunications when you're looking here at the
9 reasonableness of the premium that was issued, if any?
10 A. Very much so, because telecom in the business that
11 Windstream is in is a very capital-intensive business. And
12 capital market access is important. Capital market costs for
13 financing the growth and operation of the business is very,
14 very important. If it was a services business that wasn't
15 capital intensive, it wouldn't be as important. But for
16 telecom services where they have capital requirements every
17 day, it's extremely important.
18 Q. And so when you said this is an art, not a science, did you
19 take into account the industry that Windstream was involved in
20 and the economic condition of the industry at the time that
21 these new 6 3/8 notes were issued?
22 A. Absolutely.
23 MRS. KARIS: Thank you. I have no further questions.
24 THE COURT: All right. Any recross?
25 MR. ROBBINS: Really just one question.

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I7PAUSB6ps McCarty - Recross
2 BY MR. ROBBINS:
3 Q. Mr. McCarty, the September 22 board deck that counsel for
4 we will just reviewed with you, you point out that you think it
5 was probably created before the physical receipt of the
6 Aurelius notice of default. You just told counsel that, right?
7 A. My experience with board decks is, it's usually the day
8 before or several days before.
9 Q. But you know as you're sitting here today that before
10 Windstream physically received the notice of default on the
11 21st, it had heard rumors of that being forthcoming for at
12 least a month. Isn't that right?
13 A. I think there's a difference between rumors and fact.
14 Q. OK. Try my question. My question was, you know as you're
15 sitting here today that the company had been hearing from its
16 investment bankers and market participants and analysts, and
17 from whomever else, that these rumors of a forthcoming notice
18 of default, that they actually traced back to Aurelius weeks
19 before they physically received the notice of default. You
20 know that, do you not?
21 A. I didn't know specifically about the default. I knew that
22 they had market rumors about accumulators and CDSs. That's
23 what I know.
24 Q. Are you able to answer my question, sir?
25 A. I said, I don't recall specifically the default aspect. I

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I7PAUSB6ps McCarty - Recross
1 recall CDSs and the trading patterns.
2 MR. ROBBINS: OK. With that I have nothing further,
3 your Honor.
4 THE COURT: All right. I actually have one question,
5 and I don't want anybody to read into this. I'm just curious.
6 While you're here. That reminded me.
7 Now, you testify in your affidavit that your
8 understanding is that Aurelius had a short position in
9 Windstream bonds, correct, through credit default swaps?
10 THE WITNESS: Yes, via the credit default swaps, that
11 created a short position, yes.
12 THE COURT: And in essence you explained that the
13 theory of that position is sort of betting against the company,
14 that the investment would yield profit if the company went
15 bankrupt? Is that --
16 THE WITNESS: Yes. My understanding from the market
17 was that their CDS position exceeded their long position in the
18 bond, so a default would create a gain for them.
19 THE COURT: In your experience in that scenario, would
20 it be unusual for an investor in that position to increase
21 their long position basically to purchase more of the notes?
22 THE WITNESS: The only reason they would is to
23 maintain their majority vote so that they could maintain the
24 default.
25 THE COURT: Got you. OK. Again, I'm not suggesting

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I7PAUSB6ps
1 anybody should read into that, but I was curious.
2 Any questions following that?
3 MRS. KARIS: No.
4 THE COURT: Otherwise I think we're done.
5 MR. ROBBINS: None for this witness, your Honor.
6 THE COURT: All right. Mr. McCarty, you may step
7 down. Thank you. You're excused.
8 THE WITNESS: Thank you.
9 (Witness excused)
10 THE COURT: All right. Am I correct that that
11 concludes the evidentiary portion of the case, or --
12 MR. ROBBINS: There was one evidentiary issue that I
13 want to take up with the Court. It relates to the deposition
14 designations of the general counsel, Ms. Moody. In this
15 instance, we noticed -- we designated some portions of the
16 Moody deposition. Windstream counter-designated, your Honor.
17 But then Windstream designated some additional portions of
18 Ms. Moody's deposition, as affirmative evidence beyond what we
19 had designated. And they did so under that subsection of Rule
20 32 that provides that a witness who is more than a hundred
21 miles beyond the courthouse may have his or her deposition
22 offered as substantive evidence. At the time, we didn't object
23 because we had every reason to believe that Ms. Moody, residing
24 as she does in another state, would not be within a hundred
25 miles of the courthouse. It turns out she's not even a hundred

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I7PAUSB6ps
1 inches beyond the courthouse, because she's been sitting in
2 this courtroom since the beginning of the trial.
3 In light of that, we would move to exclude such
4 portions of her deposition as have been designated as
5 affirmative evidence on behalf of Windstream that go beyond
6 simply Rule 106 counter-designations.
7 THE COURT: OK.
8 MR. GODFREY: Well, this is the first we've heard of
9 this. She's been here all week and they're raising this at
10 4:58 today.
11 THE COURT: Mr. Godfrey, you've spent more time in
12 this courtroom than any lawyer, so by now you should know to
13 speak into the microphone.
14 MR. GODFREY: I have a bad habit, your Honor.
15 THE COURT: I know that.
16 MR. GODFREY: I don't think I've had a day in this
17 courtroom where you haven't reminded me at least once. One of
18 these days the dog will learn the trick.
19 This is the first we've heard of this, at 4:58. We
20 would like to take a look at it. I understand Mr. Robbins'
21 point, but we would like to take a look before we talk about
22 it. He could have raised it at any time in the prior days that
23 we were here.
24 THE COURT: All right. I certainly agree with that.
25 But why don't you both take a look at it, and you can submit

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I7PAUSB6ps
1 letters to me by noon on Friday with respective positions on
2 the matter, and in particular which designations we're talking
3 about. It's possible that in the filings I could figure that
4 out myself, but to the extent that you can make my job easier
5 and identify which ones are at issue and indeed whether they
6 still are at issue and your positions on that issue, that would
7 be helpful.
8 MR. GODFREY: That is more than fair, your Honor. I
9 just probably do not -- I have a copy but I don't have the
10 time, so -- noon on Friday is just fine. Thank you so much.
11 THE COURT: Good.
12 All right. Any other matters? Otherwise let's talk
13 about when we could reconvene and how to proceed.
14 MR. ROBBINS: I think as a formal matter, your Honor,
15 since it's the close of the plaintiff's case, just out of an
16 abundance of caution, I think I should move under Rule 52 for a
17 judgment as a matter of law. I understand from the Court's
18 prior ruling, when Mr. Godfrey did much the same, that the
19 Court will take that under advisement. But I don't want to be
20 held to have waived or forfeited anything I might otherwise be
21 waiving or forfeiting by failing to say that.
23 MR. FRIEDMAN: Your Honor, if I may, on behalf of the
24 U.S. trustee, we would make the same motion for judgment as a
25 matter of law.

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I7PAUSB6ps
1 THE COURT: And I assume you would make the same, now
2 that the evidence is closed on trial two within the trial as
3 well?
4 MR. GODFREY: Yes, because I made it on trial one and
5 actually it was an agreement, waived at the end of trial. I
6 know your Honor doesn't stand on those hypertechnicalities, and
7 so we'll go with the flow.
8 THE COURT: Also, Mr. McCarty, I think, had three
9 paragraphs in his affidavit that arguably pertained to trial
10 number one.
11 All right. I will deem all of you to have made your
12 motions. I will take them all under advisement.
13 Anything else?
14 MR. ROBBINS: Nothing for the plaintiff, your Honor.
15 MR. GODFREY: Nothing for Windstream Services other
16 than to thank the Court for the time and the trial.
17 MR. FRIEDMAN: Nothing here, your Honor. Thank you.
18 THE COURT: All right. Here is what I would propose.
19 I alluded to this this morning. First of all, I'm thrilled
20 that we finished today. It gives me all of tomorrow that I
21 wasn't expecting, so thank you for that.
22 Let me also say that it has been a true pleasure
23 trying the case. Unfortunately my hard work is, much of it is
24 still to come, but the lawyering was really a pleasure to watch
25 and in many respects you made my job much easier than it can

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I7PAUSB6ps
1 be, and I appreciate that, particularly in this case, given
2 some of the complexities. I think if it had been left to me to
3 figure out, for example, how to structure the trial and the
4 order of witnesses, it would have been rather difficult. And
5 you guys took care of that. And it was just a real pleasure to
6 watch you all in action and see lawyers who really know how to
7 try a case. So thank you.
8 What I would propose is reconvening, I would throw out
9 Tuesday at 11 a.m. for something in the nature of oral
10 arguments. And my hope would be -- again I think I told you I
11 don't like to give myself deadlines, but my hope would be to
12 get an order out, and I will do that it as quickly as I can,
13 with some guidance as to the issues that I would be most
14 interested in discussing so that you can prepare accordingly,
15 since there are obviously a lot of different issues that one
16 could discuss and only so much time.
17 Let's say 10:30 and we can give ourselves a couple
18 hours of time to have a healthy discussion about some of the
19 issues in the case. Does that work for everybody? July 31st,
20 10:30 a.m.?
21 MR. FRIEDMAN: Yes, your Honor.
22 MR. ROBBINS: That's fine with us. Thank you.
23 MR. GODFREY: Absolutely, your Honor.
24 THE COURT: All right. Anything else?
25 MR. GODFREY: Do you have a view -- perhaps this will

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1 be in the order that you issue -- is this a standard oral
2 argument with active judicial intervention or is this a pure
3 closing? What is the Court's view of how much time is allowed?
4 It's right now two to once against, I think, but I'm curious if
5 the Court has a preliminary view? Or maybe we'll just wait for
6 the Court to issue the order. But any thoughts would be most
7 appreciated at the back table.
8 THE COURT: I think more in the nature of oral
9 argument than summation. I wouldn't spend your time between
10 now and then preparing a jury-type address because I wouldn't
11 let you give it, so don't waste your time. I think it will be
12 much more, again, in the nature of oral argument. I'm hoping
13 that I'll give you some guidance on the issues that I want you
14 to address, and then you can sort of -- it really is sort of an
15 appellate-type argument. But I would certainly anticipate an
16 active bench, let's put it that way, which is to say that I
17 will interject and pose questions to the extent that I want to.
18 In terms of time, I will give some thought to that and
19 perhaps address it in the order, but at the end of the day I
20 will give you however much time I need to be helpful to me.
21 We'll leave it at that.
22 I would note on the subject of time, if you're
23 curious, that Services has used 6 hours and 40 minutes of its
24 allotted time, Aurelius used 4 and 21 minutes of its time, and
25 U.S. Bank used 4 hours and 50 minutes of its time. I recognize

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1 that one witness did drop out. But you were all economical on
2 that front, for which I thank you.
3 Anything else? Any other questions, concerns,
4 desires?
5 MR. GODFREY: Well, on that topic. But thank you,
6 your Honor. I think there's nothing further from the
7 Windstream Services.
8 MR. ROBBINS: Nothing for us, your Honor.
9 MR. FRIEDMAN: Nothing further, your Honor.
10 THE COURT: All right. Let me ask Ms. Smallman a
11 question. Hang on one sec.
12 All right. I'm going to leave Ms. Smallman to talk to
13 you all about the boxes and other things that you have moved
14 into the courtroom. And she is a better taskmaster than I, so
15 I will leave that to her.
16 With that, I thank you everybody, wish everybody a
17 pleasant evening. And I will see you on Tuesday.
18 (Adjourned to 10:30 a.m., July 31, 2018)
19
20
21
22
23
24
25

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657
1 INDEX OF EXAMINATION
2 Examination of: Page
3 STEPHEN CHEESEMAN
4 Direct By Ms. Karis . . . . . . . . . . . . . 425
5 Cross By Mr. Trunk . . . . . . . . . . . . . . 428
6 Redirect By Ms. Karis . . . . . . . . . . . . 456
7 Recross By Mr. Trunk . . . . . . . . . . . . . 497
8 FATEN SABRY
9 Direct By Mr. Lerman . . . . . . . . . . . . . 500
10 Cross By Mrs. Karis . . . . . . . . . . . . . 507
11 Cross By Mrs. Karis . . . . . . . . . . . . . 549
12 Redirect By Mr. Lerman . . . . . . . . . . . . 551
13 Recross By Mrs. Karis . . . . . . . . . . . . 566
14 MICHIEL McCARTY
15 Direct By Mrs. Karis . . . . . . . . . . . . . 569
16 Cross By Mr. Robbins . . . . . . . . . . . . . 571
17 Redirect By Mrs. Karis . . . . . . . . . . . . 639
18 Recross By Mr. Robbins . . . . . . . . . . . . 648
19 DEFENDANT EXHIBITS
20 Exhibit No. Received
21 Windstream 194 . . . . . . . . . . . . . . 428

Aurelius 319 . . . . . . . . . . . . . . . 506
22 Windstream 197 . . . . . . . . . . . . . . 571
23
24
25

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421

1 UNITED STATES DISTRICT COURT

3 U.S. BANK NATIONAL

19 HON. JESSE M. FURMAN,

22 FRIEDMAN KAPLAN SEILER & ADELMAN LLP

SOUTHERN DISTRICT REPORTERS, P.C.

2 MASLON EDELMAN BORMAN & BRAND LLP

4 KIRKLAND & ELLIS LLP

8 ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP

15 THE COURT: You may be seated.

16 Good morning. Welcome back.

17 All right. We will continue in a moment with the

18 testimony of Mr. Cheeseman, I take it, is that correct?

19 MR. GODFREY: Correct, your Honor.

20 THE COURT: All right. A couple housekeeping-type

21 matters. First, my understanding is that Services' motion to

22 seal the two exhibits has been mooted by agreement to redact

23 information that is irrelevant and I'm not being asked to

24 consider, is that correct?

25 MR. MARKS: That is correct, your Honor.

SOUTHERN DISTRICT REPORTERS, P.C.

1 THE COURT: Great.

2 Second, I am formally overruling Aurelius' objection

3 to calling Mr. McCarty. I certainly understand the argument

5 testimony is limited to the question of whether a premium, if

6 there was a premium, was reasonably determined and, in any

7 event, I'll consider it on a complete record.

8 Lastly, just to give you a heads up about what I'm

9 thinking at the moment. I don't know if we'll finish today or

10 tomorrow morning, as you all suggested, but I think my plan at

11 the moment -- and I'll formalize this later -- would be to ask

13 nature of oral argument. But I would like a couple of days to

14 sort of wrap my head around the evidence and sort of organize

16 I would endeavor, before you came back, to issue an

17 order directing your attention to particular issues or

18 particular questions that I would be most interested in your

19 addressing, since there are many, many different arguments

20 being made here. I think it would be helpful to organize it a

21 little bit, and that requires me to organize my thoughts a

22 little bit. So, that's sort of what I'm thing. I know a

24 to bring you back to town. But it is the great Big Apple, so

25 today's weather notwithstanding, I'm sure you won't complain.

SOUTHERN DISTRICT REPORTERS, P.C.

2 MR. GODFREY: Yes, your Honor. You had asked

3 yesterday for the Windstream exhibit number with respect to

5 the Windstream exhibit number. We had promised to get that to

6 you at the end of the day yesterday and when we finished we

7 didn't give it to you, but it is Windstream Exhibit 52, your

9 THE COURT: Great. Thank you.

10 MR. GODFREY: I think that answers the request. If

11 there is something further with respect to that, just let us

12 know and we will get you that cross-reference as well.

13 THE COURT: Thank you. Anything else before we carry

15 MR. GODFREY: Not from the back table, your Honor.

16 MR. TRUNK: Not from the front table.

17 THE COURT: All right. Is Mr. Cheeseman here?

18 MS. KARIS: Yes, your Honor.

19 THE COURT: Great. And I'm pleased to say that

20 Ms. Smallman is back so someone will remember to swear the

24 called as a witness by Windstream,

25 having been duly sworn, testified as follows:

SOUTHERN DISTRICT REPORTERS, P.C.

2 name for the record.

3 THE WITNESS: Stephen Cheeseman; S-t-e-p-h-e-n,