Sungard AS to File for Chapter 11 Bankruptcy After 'Struggling Mightily'
Sungard AS will be the second major company doing business in the channel to file for chapter 11 this year.
Sungard Availability Services (Sungard AS) rocked the channel Tuesday by confirming it is filing for bankruptcy.
The company plans to file chapter 11 bankruptcy protection early next month as part of a consensual agreement with a majority of its creditors to reduce its nearly $1.3 billion debt by more than two-thirds. It will be the second major company in the channel to file for chapter 11 this year. Windstream filed for chapter 11 in February.
This agreement creates a “sustainable capital structure to support the company’s investment and growth plans, as well as enhances its overall financial position,” Sungard AS said in its announcement.
“A diverse group of lenders came together very quickly, reaching an agreement that results in an appropriate capital structure that enables us to continue focusing on operating and growing our business,” said Andrew Stern, Sungard AS‘ CEO. “Our creditors recognize the value in what we’ve built, and are investing new capital into the business. Sungard AS will emerge from this process as a much stronger company, continuing to service existing and new customers well into the future.”
To initiate the debt reduction, Sungard AS will enter a “pre-packaged” chapter 11 filing on or around May 1. With more than 75 percent of the secured lenders and more than 85 percent of the noteholders already committed to vote to accept and/or support the plan, the company expects to emerge from bankruptcy very shortly after filing.
The company said through the restructuring process it will continue to operate in the normal course of business, including “delivering the high levels of service its customers expect and making planned investments in its fully resilient production and recovery solutions portfolio.”
Sungard AS’ Darren Thomas
The restructuring support agreement (RSA) is funded by a $100 million credit facility, which will provide the liquidity necessary to continue to implement the company’s business plan, including funding working capital, and operational and capital expenditures during the process. Once the restructuring is complete, Sungard AS’ creditors will own the company’s equity.
Darren Thomas, Sungard AS’ senior vice president of global channel sales, tells Channel Partners that partners are an important part of Sungard AS’ go-to-market strategy.
“Our restructuring will not have any impact on the strong partner relationships and alliances that we have built, and will continue to build,” he said. “And once this process is complete, Sungard AS will emerge from this process as a much stronger company – which is certainly positive for our partner relationships and opportunities, and ultimately, beneficial to our customers.”
GlobalData’s Amy DeCarlo
Amy DeCarlo, GlobalData’s principal analyst of security and data-center services, said Sungard AS’ move isn’t surprising.
“With the advent of cloud-based DRaaS solutions that offered customers more economical and more agile options than legacy approaches, a company like Sungard AS that applied a more traditional model was bound to be challenged,” she said. “Sungard AS is private equity-owned so I haven’t seen any financials, but the sense is the company has struggled mightily in recent years.”
That said, this bankruptcy restructuring could be a “very good opportunity for the company to regain its footing,” DeCarlo said.
“However, for Sungard AS to make real progress, the company will need to revisit its core solution set and go-to-market model,” she said.
Ovum’s Mike Sapien
Mike Sapien, Ovum’s vice president and chief analyst of enterprise services, said Sungard AS’ services “were very well-known to be very high cost” based on proprietary technology with many physical, private data centers.
“I do think the increasing availability of low-cost network bandwidth, with the growing use of third-party data centers and customers leveraging cloud services over the past five years has shrunk some of Sungard AS’ target market/demand, which requires them to redesign, create more competitive offers and reduce their overall pricing,” he said. “Filing chapter 11 will allow Sungard AS to get time to complete a revamp of its services, leverage cloud services and develop a more competitive service portfolio. It may allow them the ability to lower their capital for data centers including its leased facilities (data center and network).”
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