Avaya Files for Chapter 11 Reorganization in Southern District of New York

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By Jacob Maslow

Avaya filed for Chapter 11 plan for reorganization in the Southern District of New York, offering a clear plan to reduce the company’s pre-filing debt, according to a company press release. The company’s restructuring aims to reduce the company’s total debt by $4 billion.

The company’s pre-filling debt is around $6.3 billion. A reduction in debt will help the company strengthen its balance sheet and allow for added financial flexibility.

“We are pleased to have filed the Plan, which is a crucial step forward in our effort to recapitalize Avaya’s balance sheet and create a stronger and healthier company that can create even more value for our customers,” states Kevin Kennedy, CEO of Avaya. “We look forward to working closely with all stakeholders over the coming weeks and months to refine the Plan and build consensus.”

The company requests an approval date of May 25 for the company’s disclosure statement.

The company will need for the plan and statement to be voted on by creditors before moving forward. Restructuring will be through a debt-for-equity exchange, where the creditors will receive 100% of the company’s reorganized equity.

Avaya will honor their U.S. pension plans following the bankruptcy.

All bargaining agreements will be honored. The plan is the first step in the company’s attempt to restructure, and will initiate initial negotiations with creditors. Negotiations may change the plan’s final draft. The final plan, following the approval and negotiations with creditors, will then be submitted to the court.

The company’s bankruptcy plans will not have an impact on its customers and partners. The company will keep partners updated as necessary. Avaya has no plans to reduce its current product roadmaps or slow down its research and development plans.

The company declared Chapter 11 in January, with reports of $3.7 billion in revenue on the year and an operating loss of $262 million. The company’s revenue fell 9% from the previous year. Bankruptcy proceedings have done little to disway partners and deals. The company added 300 partners and closed over 1,200 deals since filing for bankruptcy.

Avaya has been the focus of criticism after reports that the company plans to offer bonuses, around the £3 million mark, to eleven executives. The plan to offer bonuses comes after the company filed for bankruptcy.

The company has secured $725 million from a Citigroup affiliate to help fund the company’s operations as they proceed through their reorganization plan.

Kennedy reaffirms that the company’s normal business operations are running well and that the company is experiencing significant customer renewals. The company has more than $750 million in cash on its consolidated balance sheet. The CEO states that the company needs to look at its expenditures over the past decade to understand how the company has reached Chapter 11.

The company blames the economic downturn in 2008 as being a driving force behind the company’s bankruptcy, noting that the economic downturn had a significant impact on consumer behavior.

Telecommunication companies, like Avaya, have difficulty transitioning from hardware to software and services. The company planned to sell its call center operations in 2016, but struggled to find a buyer for the unit. Clayton, Dubilier & Rice LLC bid around $4 billion for the unit, but the deal fell through.

The company will look at selling off parts of its business, but states that selling their call center operations would not maximize value to the company’s creditors or customers. The company’s creditors were reducing terms and payment periods in the start of 2017 out of fear that the company’s financial health would not allow for proper repayment.

The loan from the Citigroup affiliate helped to alleviate creditor fears.

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