Bankrupt Avaya sets out debt-for-equity plan to emerge from Chapter 11

Alan Burkitt-Gray
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Debt will be cut by $4bn and creditors will take over 100% ownership, says Avaya

Avaya has filed a plan of reorganisation, three months after going bankrupt with debts of $6.3 billion.

The company, which has already announced plans to sell off its networking business to Extreme Networks for $100 million, said that it plans to reduce its debt by $4 billion.

Avaya went into Chapter 11 bankruptcy protection in January 2017 as it faced an interest payment of $600 million thanks to debts run up from an $8.2 billion private equity buyout a decade ago.

CEO Kevin Kennedy said the plan is “a crucial step forward in our effort to recapitalise Avaya’s balance sheet and create a stronger and healthier company that can create even more value for our customers”.

Avaya said its restructuring will be achieved through a debt-for-equity exchange, in which certain secured creditors would acquire 100% of reorganised Avaya’s equity.

The company has said that it is able to draw on $725 million of debtor-in-possession financing to enable it to continue until it emerges from Chapter 11. It can also continue to pay employees’ salaries and other benefits.

Kennedy has asked the bankruptcy court to schedule a hearing on 25 May to consider the plan.

“Our normal business operations are running well, and we continue to sign significant customer renewals and new customer contracts,” he said. “We remain confident in our ability to maximize value for all of our stakeholders and to complete our balance sheet restructuring as soon as reasonably possible.”

Avaya was created 22 years ago out the office equipment business of Lucent Technologies, which itself was the former equipment-making business of the pre-1984 AT&T, broken up into many different elements, some of which have reconsolidated.

Private equity groups Silver Lake and TPG Capital bought Avaya for $8.2 billion in 2007, loans for which Avaya had to pay $400 million a year in interest. In 2009 it bought the enterprise solutions business of bankrupt Nortel for $900 million.