"This path is a reflection of our debt structure, not the strength of our operations or business model." CEO Kevin Kennedy.
Troubled Avaya has filed voluntary petitions under chapter 11 of the US Bankruptcy Code. The company's foreign affiliates are not included in the filing and will continue normal operations.
Avaya has obtained a committed $725m debtor-in-possession (DIP) financing facility underwritten by Citibank. Subject to court approval, this DIP financing, 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 minimise disruption.
"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," said Kevin Kennedy, Chief Executive Officer of Avaya.
"Reducing the company's current debt through the chapter 11 process will best position all of Avaya's businesses for future success."
As part of Avaya's assessment of options to address its capital structure, the company evaluated expressions of interest in various Avaya assets, including its contact centre business.
After evaluation in consultation with its financial and legal advisors, the Avaya Board of Directors has decided that focusing on the company's debt structure is paramount and a sale of the Contact Centre business at this time would not maximise value for Avaya's customers and all of its stakeholders.
Avaya said in a statement that it remains in ongoing negotiations to monetise certain other assets, as appropriate, to maximize value for all stakeholders.
"This is a critical step in our ongoing transformation to a successful software and services business," added Kennedy.
"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.
"Now, as a result of the terms of Avaya's debt obligations and the upcoming debt maturities, we need to recapitalise the company.
"Our business is performing well and we are confident that we can emerge from this process stronger than ever, as this path is a reflection of our debt structure, not the strength of our operations or business model.
"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.
"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."
Adept Telecom CEO Ian Fishwick commented: "Avaya has been generating strong cash flow. However, until the accumulated debts of circa $6bn are paid the business will continue to struggle.
"Chapter 11 gives breathing space to businesses to sort out selling-off assets or securing more funding. US businesses that successfully entered and emerged from Chapter 11 include General Motors, American Airlines, Texaco, Macy’s and Bloomingdale’s."
"Whatever happens, Avaya will continue as a brand and as a business, but the ownership or structure of its finances will change. Chapter 11 is just one way of achieving this."
On reports of money owed by Avaya to creditors, a spokesperson for the vendor said that for trade payables for Avaya entities outside those listed in the Chapter 11 filing, it’s business as usual (including channel). Trade payables for Avaya subsidiaries within those listed in the filing were paid before the filing, to avoid disruption.
"Ultimately, the process is intended to help Avaya carry on as normal, especially in the UK, where the business isn’t affected by the filing," stated the spokesperson.