Avaya Files for Chapter 11 Bankruptcy, 2nd Time in 6 Years

Avaya, the cloud communications collaboration and channel stalwart, has filed for chapter 11 bankruptcy — again. The second filing in six years comes in the U.S. Bankruptcy Court for the Southern District of Texas.

Expect the bankruptcy to reduce the company’s debt by more than 75%, from approximately $3.4 billion to about $800 million. Additionally, Avaya says it will substantially increase the company’s cash on hand and strengthen its liquidity position. The company has secured $780 million in committed financing.

The process will take two to three months, Avaya said. However, vendors, suppliers and employees will still be paid as usual.

Avaya’s Alan Masarek

“Strengthening Avaya’s capital structure is a critical step to fully realize our transformation,” said Avaya CEO Alan Masarek. “We are excited to move ahead as a well-capitalized company with one of the strongest balance sheets in our industry that includes substantial cash to invest in our own success.”

The company has received commitments from Apollo Global Management, Brigade Capital Management and Citi.

No Surprise

Experts and analysts said they don’t find the bankruptcy surprising. In the last six months, the news cycle has surrounded whether Avaya would take this route, considering the financial potholes the company faced. One went as far to raise “substantial doubt about the company’s ability to continue as a going concern.”

In June, Avaya borrowed $600 million. Then on June 24, the company sold a $350 million leveraged loan and a $250 million exchangeable note. They were both secured on a first-lien bases to help refinance the older convertible notes maturing in June 2023, Bloomberg reported.

However, on July 28, Avaya made substantial changes. It hired a new CEO, appointing Masarek to the job. The company then slashed its “adjusted earnings forecast for the third quarter by more then 60%,” or between $50 million and $55 million. Avaya also reduced its revenue expectation by more than 16%.

Ultimately, this course of action “pulled down the price of the company’s debt,” according to Bloomberg. Investors were rattled more when Avaya disclosed a significant earnings miss for the quarter through June 30. Investors ended up with “millions in paper losses.”

Some of Avaya’s financial concerns center on its attempts to transition from a legacy hardware company to a software and services organization. It’s a market where heavy competition exists from companies who are cloud-native.

As for the latest bankruptcy filing, Avaya has the support of more than 90% of the company’s secured lenders. That may be positive news in a series of unfortunate circumstances.

The New York Stock Exchange recently threatened Avaya with delisting, as company shares fell 97% last year. Bondholders last week filed a $125 million lawsuit against Avaya, claiming “massive fraud.”

Stay with Channel Futures for ongoing coverage of the Avaya bankruptcy announcement.