Avaya files for bankruptcy protection

March 2017  |  DEALFRONT  | BANKRUTPCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

March 2017 Issue

March 2017 Issue


American multinational technology company Avaya Inc., along with certain of its domestic subsidiaries, filed for Chapter 11 bankruptcy protection in a bid to better position itself for the future. The company is said to have a debt load of around $6.3bn.

To help facilitate the restructuring, Avaya has obtained a committed $725m debtor-in-possession (DIP) financing facility underwritten by Citibank. Subject to approval by the United States Bankruptcy Court for the Southern District of New York, this DIP financing, combined with the company’s cash from operations, is expected to provide sufficient liquidity during the Chapter 11 cases to support its continuing business operations and minimise disruption. Indeed, the Chapter 11 filing is limited to only those parts of Avaya which operate in the US, with various foreign affiliates of the company continuing to operate as normal.

“We have conducted an extensive review of alternatives to address Avaya’s capital structure, and we believe pursuing a restructuring through Chapter 11 is the best path forward at this time,” said Kevin Kennedy, chief executive of Avaya. “Reducing the company’s current debt through the Chapter 11 process will best position all of Avaya’s businesses for future success.”

As part of its comprehensive assessment of options to address its capital structure, Avaya evaluated expressions of interest in various Avaya assets, including its contact centre business. After extensive evaluation in consultation with its financial and legal advisers, the Avaya board of directors decided that focusing on the company’s debt structure was of paramount concern and a sale of the contact centre business at this time would not maximise value for Avaya’s customers and all of its stakeholders.

Despite this, Avaya has made it clear that it remains in ongoing negotiations to monetise certain other assets, as appropriate, to maximise value for all stakeholders. “This is a critical step in our ongoing transformation to a successful software and services business,” explained Mr Kennedy. “Avaya’s current capital structure is over 10 years old and was put in place to support our business model as a hardware-focused company, which has evolved significantly since that time. Now, as a result of the terms of Avaya’s debt obligations and the upcoming debt maturities, we need to recapitalise the company.”

As the global leader in delivering superior communications experiences, Avaya provides the most complete portfolio of software and services for contact centre and unified communications with integrated, secure networking — offered on premises, in the cloud, or a hybrid.

“Our business is performing well, and we are confident that we can emerge from this process stronger than ever, as this path is a reflection of our debt structure, not the strength of our operations or business model. Pursuing restructuring through Chapter 11 will enable us to reduce our debt and interest expense, while providing increased financial flexibility to further invest in innovation and growth to enhance our market-leading competitive position,” added Mr Kennedy.

Along with the filing of the voluntary petitions, Avaya has also filed a number of ‘first-day’ motions with the Court to facilitate a smooth transition into Chapter 11 and minimise business disruption. Among other things, the motions request authorisation to continue certain customer and partner programmes and to honour certain employee compensation and benefit obligations.

Throughout the course of the Chapter 11 filing, Centerview Partners and Zolfo Cooper will be Avaya’s financial and restructuring advisers. Goldman Sachs is acting as M&A investment banker and Kirkland & Ellis LLP is restructuring counsel.

Mr Kennedy concluded: “We are keenly focused on minimising disruption to our customers, partners, and employees and do not expect to experience any material disruptions during the Chapter 11 cases.”

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BY

Fraser Tennant


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