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Avaya files for chapter 11 bankruptcy

Networking supplier has filed voluntary petitions under chapter 11 of the US bankruptcy code

Networking and unified communications equipment supplier Avaya, along with a number of subsidiaries, has declared chapter 11 bankruptcy in the US in order to buy itself time to restructure its balance sheet, but says its foreign affiliates will not be affected and will be able to continue operating normally.

Avaya, formerly part of Lucent Technologies and, at one time, US telco AT&T, is understood to have been weighing up various options for its future ever since it emerged that its VC owners were considering selling it last year.

It has now obtained a $725m debtor-in-possession (DIP) financing facility, underwritten by Citibank, which, together with its cash from operations, should give it enough leeway to support the business while it remains under chapter 11 protection.

“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 CEO Kevin Kennedy.

“Reducing the company’s current debt through the chapter 11 process will best position all of Avaya’s businesses for future success.”

Last May, Kennedy told analysts on a company conference call that Goldman Sachs was helping Avaya evaluate “expressions of interest” from other companies in acquiring certain assets, specifically its contact centre business, but Kennedy today confirmed that this deal was being taken off the table so Avaya could concentrate on its debt structure.

“Avaya remains in ongoing negotiations to monetise certain other assets, as appropriate, to maximise value for all stakeholders,” the firm said in a statement.

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“This is a critical step in our ongoing transformation to a successful software and services business,” said 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 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.”

Kennedy insisted that Avaya was keenly focused on minimising disruption to customers, partners and employees. .....................................................

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