Avaya emerges from Chapter 11 after restructuring

February 2018  |  DEALFRONT  |  BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

February 2018 Issue


Less than 12 months after filing for Chapter 11 bankruptcy protection, networking and communications vendor Avaya announced that it has completed its debt restructuring and emerged from bankruptcy with a new board and leadership team in place.

Jim Chirico, the company’s former chief operating officer, has replaced Kevin Kennedy as chief executive and president following Mr Kennedy’s retirement in October.

In November, Judge Stuart Bernstein of the US Bankruptcy Court in New York said that he was satisfied with Avaya’s exit plan, which marked a third attempt by the company to exit restructuring. Following the judge’s approval, Avaya finally exited Chapter 11 in mid-December.

“This is the beginning of an important new chapter for Avaya,” said Mr Chirico. “In less than a year since the commencement of our chapter 11 restructuring, Avaya has emerged as a publicly traded company with a significantly strengthened balance sheet. Overall, we reduced our prior debt load by approximately $3bn, and we exit today with more than $300m in cash on our balance sheet. The reduction of our debt and certain other long-term obligations will also improve annual cash flow by approximately $300m compared to fiscal 2016.”

Avaya filed to restructure under Chapter 11 bankruptcy protection back in January 2017, saying at the time that the $725m in debtor-in-possession financing it secured from Citibank would be enough to minimise disruption and continue business operations moving forward. The company’s restructuring efforts were required to reduce its $6.3bn debt load. Avaya had been weighed down with debt stemming from an $8.2bn buyout in 2007 by private equity firms Silver Lake Partners LP and TPG Capital LP. In order to reduce its debt load prior to the filing, Avaya had hoped to divest its call centre business for around $4bn but was unable to secure a deal.

Avaya, which was spun out of Lucent Technologies in 2000, focuses on communication and messaging, video conferencing, call centre, networking, and software and services. The company expanded into networking in 2009 after it acquired Nortel Enterprise Solutions for $900m; however the company subsequently sold its networking business to Extreme Networks for $100m in July 2017. As a result of the sale, Avaya has refocused its attention on its contact centre business – the company also attempted to divest the contact centre business in 2017, however it was unable to complete a deal.

“We have the flexibility we need to invest in the large and growing contact centre and unified communications markets as we complete our transformation to a software, services and cloud solutions provider,” Mr Chirico added. “With a new board and leadership team firmly in place, Avaya is now well-positioned to execute on its growth plan and deliver the returns and value expected by our stakeholders.”

Business challenges stemming from the company’s bankruptcy were reflected in the fiscal third-quarter earnings report the vendor released this week. The report confirmed a 9 percent drop in revenue year over year. The decline lowered revenue to $803m and contributed to a net loss of $105m for the period ended 30 June 2017. The company said the revenue drop stemmed from lower demand for products and services primarily due to extended procurement cycles resulting from the Chapter 11 filing.

Following approval of the company’s exit plan, Avaya is now working to be listed on the New York Stock Exchange, and expects to have approximately 110 million shares outstanding upon emergence. The company’s growth strategy, post-exit, is already underway. Avaya generated positive EBITDA, including an estimated $225m to $230m for Q4 2017, it said in October. Avaya has also signed more than 4000 major customer contracts, recruited 1000 new partners and invested more than $225m in R&D since the bankruptcy filing. According to company estimates, Avaya now has more than 6300 partners and 130,000 customers across the small, mid-sized and enterprise business segments.

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BY

Richard Summerfield


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