Avaya in Chapter 11 as debts hit $6.3bn

Alan Burkitt-Gray
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Enterprise equipment company Avaya seeks bankruptcy protection as it faces huge interest repayments

Avaya has filed for bankruptcy, as the company faces a $600 million interest payment thanks to debts arising from its $8.2 billion private equity buyout a decade ago.

The company’s revenue was flat and falling, with fourth quarter revenue – announced yesterday – down from $1 billion to $958 million, with a net loss for the whole year of $750 million. Reports put the company’s total debt at $6.3 billion.

“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 CEO Kevin Kennedy.

He said that Avaya plans to transform itself from a hardware company into a software and services company. A survey last month put Avaya at number two to Cisco in enterprise voice systems.  

Chapter 11 of the US Bankruptcy Code allows companies time to restructure their balance sheet and try to survive. “Reducing the company’s current debt through the chapter 11 process will best position all of Avaya’s businesses for future success,” said Kennedy.

According to Reuters, Avaya was paying more than $400 million a year in interest on loans from when it was bought out Silver Lake and TPG Capital in 2007 for $8.2 billion.

Avaya was created in 1995 from the office equipment business of Lucent Technologies – which went on to become Alcatel-Lucent and is now owned by Nokia. In 2009, after the private equity takeover, the company bought the enterprise solutions business of bankrupt Nortel for $900 million. 

Global Telecoms Businessreported in 2012  that the private equity owners were looking at a share flotation. Further reports in May 2016 said that Silver Lake and TPG Capital were looking at a sale of Avaya in a deal valuing it at $6 billion to $10 billion.

Avaya announced yesterday that it had “evaluated expressions of interest in various Avaya assets, including its contact centre business. After extensive evaluation in consultation with its financial and legal advisors, the Avaya board of directors has determined that focusing on the company’s debt structure is paramount and a sale of the contact centre business at this time would not maximise value for Avaya’s customers and all of its stakeholders.”

The company added: “Avaya remains in ongoing negotiations to monetise certain other assets, as appropriate, to maximize value for all stakeholders.”

Kennedy said: “This is a critical step in our ongoing transformation to a successful software and services business. 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.”