Avaya files for bankruptcy protection, CEO calls it the 'best path forward'
Avaya has confirmed that it has filed for Chapter 11 bankruptcy protection in a move chief executive Kevin Kennedy said was "the best path forward".
"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," Kennedy said in a statement. "Reducing the company's current debt through the Chapter 11 process will best position all of Avaya's businesses for future success."
The US-based company said it had commenced a formal proceeding to restructure its balance sheet to better position itself for the future. To facilitate the restructuring, Avaya said it had filed voluntary petitions under Chapter 11 of the US Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York.
Avaya's foreign affiliates are not included in the filing and will continue normal operations, according to the company. An Avaya Australia and New Zealand spokesperson told CRN the local arm of the company would proceed with business as usual.
The company has US$6 billion (A$7.9 billion) in debt and needs to raise US$600 million for a debt maturity in October 2017.
Avaya said it obtained a committed US$725 million debtor-in-possession financing facility underwritten by Citibank, subject to court approval. This financing, according to Avaya, 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 minimize disruption.
The company said it would not sell its contact centre business.
As part of Avaya's plan to address its capital structure, the company said it evaluated expressions of interest in various Avaya assets, including its contact centre business. After discussions with its financial and legal advisers, the board of directors determined that focusing on Avaya's debt structure was paramount and a sale of the contact centre business would not maximise value for customers and stakeholders.
"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," Kennedy said. "Now, as a result of the terms of Avaya's debt obligations and the upcoming debt maturities, we need to recapitalise the company."
Kennedy said the company's business was "performing well" and that he was confident it would emerge "stronger than ever".
"Pursuing restructuring through Chapter 11 will enable us to reduce Avaya’s debt and interest expense, while providing increased financial flexibility to further invest in innovation and growth to enhance our market-leading competitive position," said Kennedy. "Most importantly, 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."
Avaya remains in ongoing negotiations to monetise certain other assets, as appropriate, to maximize value for all stakeholders, according to the company.