Legacy comms outfit Avaya returns to Chapter 11 bankruptcy protection

Just when I thought I was out, they pull me back in

Unified comms vendor Avaya is back where it was in 2017, once again slipping into the embrace of Chapter 11 bankruptcy protection with a plan to chop $2.6 billion of debt from its balance sheet.

In a filing in a Texas federal court yesterday, the biz said it had cut a deal with creditors, saying its restructuring plan had the "overwhelming support of more than 90 percent of the Company's secured lenders." The restructure would "eliminate more than 75 percent of its debt," Avaya said, shrinking it down from $3.4 billion to $800 million. The company plans to continue operations.

In a disclosure filed with the court, Avaya admitted the company's "revenues from capex-based purchases (software license and support and hardware) have continued to decline over the past several years, consistent with industry trends and customers preference to shift towards cloud-based solutions."

Exacerbating the situation, the company's subscription business growth began to decelerate in the second half of 2022, it added. Avaya also raised $600 million in financing in July last year.

The application shows the difficulties facing traditional hardware slingers as they move to selling software and everything-as-a-service.

The move comes nearly four years after Avaya took $500 million off RingCentral to pay off debt, buy back shares, and keep shareholders sweet.

Under terms of this week's prepackaged bankruptcy [PDF], however, the company's common shares will likely expire, with Avaya noting it didn't expect shareholders to "receive any recovery at the end of the court-supervised process."

The company added that it had "extended and expanded its global, strategic partnership with RingCentral, Inc," as the Chapter 11 filings work their way through the system.

The company last entered Chapter 11 in January 2017 so it could refinance debt it originally took on when it went private in 2007 in an $8 billion June buyout by private equity types Silver Lake and Texas Pacific Group.

The company said it expects to emerge from the process a private concern, with a fresh $780 million in financing, within 60 to 90 days and emphasized that the voluntary process only affects the American org and its US-based subsidiaries.

Bankruptcy hearings begin today at 0900 Central (1500 UTC) in Houston, Texas.

Megabuyte analysts opined of the move: "Avaya is a classic example of a business that has had to undertake a debt-for-equity swap twice (dubbed Chapter 22) because the first one didn't go far enough. Telecoms reseller Azzurri (now owned by Maintel) would be a good example closer to home."

The analyst added that Avaya's circa $2.5 billion in net debt after the 2017 restructure equated to about four times the trailing $622 million EBITDA, and the "ongoing debt interest burden, constraints on product innovation, and resulting lackluster financials meant that net debt continued to grow whilst EBITDA never again touched those giddy heights." ®