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  1. #1
    WHT-BR Top Member
    Data de Ingresso
    Dec 2010

    [EN] Avaya files for bankruptcy

    Jan 19, 2017

    Telecommunications company Avaya has filed for chapter 11 bankruptcy to reduce its debt load of about US$6.3 billion but said it would not sell its call centre business, which it had tried to do last year.

    The bankruptcy underscores the challenges telecommunications companies face as they transition to software and services from hardware. Early last year, Avaya had planned to sell its call centre business but did not reach a deal with buyout firm Clayton, Dubilier & Rice LLC, which had been in the lead to acquire it for about US$4 billion.

    Avaya said it must focus on its debt and that a sale of the call centre would not maximise value for its customers or creditors. It is still negotiating deals to sell parts of its business.

    The company is hashing out the terms of a restructuring deal with its creditors. The original goal was to have one in place before bankruptcy, but an agreement was not reached.

    Avaya faced a deadline at the end of January in agreements with creditors to address its debt or potentially default.

    The company has been burdened by debt stemming from an US$8.2 billion buyout in 2007 by private equity firms Silver Lake Partners LP and TPG Capital LP, with US$600 million due in October. Interest expense of more than US$400 million a year has been pushing Avaya into losses.

    At Sept. 30, Avaya owed its pensioners US$1.7 billion.

    "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," said CEO Kevin Kennedy.

    "Now, as a result of the terms of Avaya's debt obligations and the upcoming debt maturities, we need to recapitalise the company."

    The company said an affiliate of Citigroup would provide a US$725 million loan to fund its operations during the reorganisation, which is expected to last at least 45 to 60 days.

    Avaya's revenue fell to US$958 million in the fourth quarter ended on Sept. 30 from US$1 billion a year earlier, according to financial results released today. For the fiscal year, the company posted a net loss of US$750 million.

  2. #2
    WHT-BR Top Member
    Data de Ingresso
    Dec 2010

    Avaya Continues Day-to-Day Operations

    Somewhat ironically, Avaya largely entered the networking market in 2009 through its $900 million acquisition of Nortel's enterprise assets

    Sean Michael Kerner
    Jan 19, 2017

    Avaya is restructuring itself and has filed for Chapter 11 bankruptcy protection in the U.S. The move does not mean that Avaya is out of business, with day to day operation are set to continue as the company comes to terms with its over-sized debt load.

    The news on the Chapter 11 filing comes as the company reports its fourth quarter and fiscal 2016 results. For the full year, Avaya reported revenue of $3.7 billion down nine percent from 2016. Avaya reported a Net Loss of $750 million for the year, up from the $144 million the company lost in 2015.

    Avaya is not holding its quarterly conference call with financial analysts today along with the earnings release.

    "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," Kevin Kennedy, Chief Executive Officer of Avaya, 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."

    In a question and answer document, Avaya emphasized that the chapter 11 filing does mean the company is going out of business.

    "Like many companies that have used chapter 11 to improve their balance sheet, including General Motors and American Airlines, we will continue operating in the ordinary course while we restructure our balance sheet," the company stated. "Our decision to restructure our balance sheet reflects our debt level and not our operations or financial performance, which have been, and continue to be, strong."

    Looking specifically at Avaya's fourth quarter performance, the company reported that its cloud and managed services revenue grew 3 percent year-over-year, while contact center product revenue increased 13 percent year-over-year.

    Avaya's networking product revenue improved by 31 percent year-over-year. Somewhat ironically, Avaya largely entered the networking market tin 2009 through its $900 million acquisitionof Nortel's enterprise assets. Nortel had similarly struggled through a period of debt restructuring, ultimately ending in the company selling off its assets and going out of business.

    Última edição por 5ms; 19-01-2017 às 21:04.

  3. #3
    WHT-BR Top Member
    Data de Ingresso
    Dec 2010

    Legally & Practically: What Avaya's Chapter 11 Means to Customers

    Martha Buyer
    February 08, 2017

    As Avaya comes before the bankruptcy judge today in its second major court appearance since filing for Chapter 11 protection on Jan. 19, it's hoping that the final orders will be approved and "negotiations will begin in earnest," as Avaya's John Sullivan, VP or corporate treasury, shared with No Jitter Editor Beth Schultz (and she related to me). However, the company recognizes that the just-formed unsecured creditor group may request, and be granted, more time.

    Either way, I figured it was time to brush up on bankruptcy law. For that, I turned to well-respected -- and very smart -- bankruptcy attorney Bill Brown of Phillips Lytle. My experience with bankruptcy law is limited (make that zero), and I knew I could learn a lot from him, which I did. Not only did he give me a thorough tutorial, but also a volume of documents that Avaya filed.

    A Story to Tell

    In reading the Avaya Chapter 11 documents, I did so with the awareness that their purpose is to tell a story and provide background for the bankruptcy judge and company shareholders. At a minimum, they provide a legal perspective on what the company is thinking, and how it hopes to resolve its current dilemma. But Let me start with some facts.

    In the paperwork, Avaya (technically "Avaya Enterprises") described itself as a "global provider of contact center, unified communications, and networking products and services," and said it supports more than 200,000 direct and indirect customers. These customers consist of multinational enterprises, small and medium-sized businesses, and 911 services, Avaya stated. The company today comprises 176 different entities, only 18 of which fall under the Chapter 11 filing, as disclosed in the filed paperwork.

    Avaya, as stated in the paperwork, is obligated (some might say "burdened") with $6 billion of secured debt. This debt includes, but is not limited to, $1.5 billion in underfunded liabilities from two employer-defined benefit pension plans, as well as other pension plans and post-employment benefits. Avaya has approximately 9,700 employees worldwide, 3,800 of whom work for the 18 debtor entities. Of this 3,800, only 550 are covered by collective bargaining agreements with the Communications Workers of America and the International Brotherhood of Electrical Workers. It is important to note that Avaya's non-U.S. affiliates (all 158 of them) are not debtors in these proceedings currently, and Avaya does not anticipate that they will be brought into the bankruptcy filing in the future.

    The Avaya business comprises four slightly overlapping market segments: unified communications (58% of revenue), contact center (27%), networking (7%), and managed and outsourced communications support services (8%). As many knowledgeable communications professionals are well-aware, Avaya relies on direct and indirect sales models to generate income. Avaya has also placed significant value on its intellectual property, including approximately 5,400 patented products and services; licenses for the manufacture, use, and sale of its products; and copyrights and trademarks. All of which is to say, Avaya retains valuable assets. The question is whether or not the assets are sufficiently valuable -- and whether the strength of those products in the marketplace will be enough -- to enable the company to extract itself from its current predicament.

    The Pulse of a Bankruptcy

    Bankruptcy financing comes in two primary types: use of cash collateral, and debtor in possession (DIP) financing. Avaya has gone with the DIP approach, which is the typical preference of vendors. In this model, the debtor has continued access to credit for the purpose of funding its business following the filing, otherwise known as the "post-petition" period. This approach provides an assurance -- in other words, a vote of confidence, not a guarantee -- to Avaya customers and suppliers that the company should be able to pay its post-petition debt. Often in Chapter 11 bankruptcy cases, vendors will shorten up terms if they can in an effort to secure payment while simultaneously being acutely sensitive to the terms under which they'll continue to do business with the debtor.

    While others have pointed out that time is of the essence in these cases (see Avaya Bankruptcy: Good or Bad for Customers?"), Avaya met with a chilly reception from the bankruptcy judge on its initial request, which came before the court the day after the Chapter 11 filing, to receive funds from a financing package that was approved prior to its filing. Such ups and downs are not unusual.

    In fact, a bankruptcy is a little bit like watching a heart monitor. You have this initial peak and then a horizontal plane and then you have another peak," Phillips Lytle's Brown told me. "Right now, Avaya is still in the initial peak. The interim first day hearings have occurred. At that time, the bankruptcy judge granted some, but not all, of those interim requests."

    As noted above, as of this writing the second-day hearing is imminent, but a ruling not a certainty. "At some point," Brown said, "... the court will consider the full amount of the proposed DIP financing, after creditors have had a chance to organize."

    Advice for Avaya Customers

    If your enterprise is relying on Avaya equipment and/or services, the best advice at this point is not to panic. Despite claims you may hear from competitors, it's far from time to abandon Avaya products and services -- particularly in the U.S. However, key indicators, particularly related to maintenance, repair, and overall service, will be critical in the next few months as the company attempts to right its own ship.

    As Avaya has moved away from CapEx products in favor of OpEx items, careful vendor monitoring and management will provide just about the best indicator possible of how the reorganization is going and what the longer-term outcome will be. It's important to remember that the debt is significant, but not insurmountable, and that Avaya, which continues to create valuable products and services in the marketplace, remains an important player. Besides, there just might be a bargain to be had!

    For more guidance on how to move forward in this time of uncertainty, see the recent post, "Avaya Users: Time to Build Your Contingency Plans," from UC consultant Steve Leaden. In addition, join Leaden and his co-panelist, attorney Andrew Brown, with LB3 Law, for an interactive breakout session at Enterprise Connect 2017, coming the week of March 27 to Orlando, Fla., on the status of Avaya. The session, Avaya Update: What Enterprises Need to Know Right Now," will take place Monday, March 27, at 2:00 p.m. to 3:00 p.m.

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