Avaya Inc., the veteran unified communications company, said this week that it’s filing for Chapter 11 bankruptcy protection for the second time in its history, while announcing a plan that will slash $2.6 billion of debt from its balance sheet.

The company’s filing in a Texas court revealed that it has agreed a deal with its creditors. It added that the restructuring plan had “overwhelming support” from more than 90% of its secured lenders.

Through the restructuring plan, it will “eliminate more than 75% of its debt,” the company said. As a result, its total liabilities will shrink from $3.4 billion now to about $800 million, allowing it to continue running its business.

Avaya said in its filing that “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.”

The situation grew worse for Avaya when its subscription business first began to slow during fiscal 2022. The company managed to raise $600 million in financing last July, but even with that funding, it was unable to turn things around.

Avaya’s bankruptcy has been an option on the table for some time. Last August, the company warned that it had “substantial doubt” about its ability to continue operating as a going concern, saying it would miss its third-quarter fiscal 2022 revenue targets by some distance.

That came after the company hired Alan Masarek (pictured) as its new chief executive officer in July. He had previously pulled Vonage America LLC from the brink of bankruptcy before going on to sell it to Telefonaktiebolaget LM Ericsson AB.

In a statement announcing the bankruptcy, Masarek said he joined Avaya to strengthen its capital structure and realize its business transformation. “We are excited to move ahead as a well-capitalized company with one of the strongest balance sheets in our industry that includes substantial cash to invest in our own success,” he said of the plan.

Avaya was founded back in 2000 after spinning off from Lucent Technologies Inc. and debuted on the stock market later that year. In 2007 it became a private company in an $8.2 billion deal led by Silver Lake Partners and TPG Capital. That appears to be when its problems started, as it remained a private entity for a full decade until declaring bankruptcy for the first time in January 2017. After emerging from that process, it went public again at the end of the year.

The company is a major player in the unified communications technology business, and it’s also involved in networking. It started out as a provider of communications, and later, networking hardware. But for the last six years has been pushing its cloud contact center and collaboration software.

Enterprises use its software to manage their contact centers and to enable business collaboration. It has established a strategic partnership with RingCentral LLC too, with that company helping to develop and sell its cloud-based offerings. RingCentral is also a major financial backer of Avaya, having invested $500 million in the company in 2019.

Avaya’s bankruptcy highlights the challenges faced by traditional hardware firms as they pivot to selling software-based products as-a-service. It’s a slow process that involves a radical redesign of the company’s core offerings and business model, and clearly it doesn’t always work out as planned.

Hyoun Park, an analyst with Amalgam Insights, told SDxCentral that Avaya also missed a big opportunity when the COVID-19 pandemic helped to accelerate digital transformation. At the time, the collaboration and contact center markets were growing rapidly, but Avaya’s debt obligations “prevented it from executing in these areas,” he said.

Avaya said it believes it will emerge from its latest bankruptcy proceedings in a much healthier state. It said it will exit bankruptcy in 60 to 90 days as a private concern armed with a fresh $780 million in funding that will be used to invest in growing its business.

Most likely, Avaya’s debt restructuring has been in the works for some time, and it could turn out to be a smart move that sets the company up for its next phase of growth, said Liz Miller of Constellation Research Inc.

“Now, arguably, they hit send on that cloud communications strategy a few years too late,” Miller added. “But, they are closing the gap with their Avaya Experience Platform and the Avaya Cloud Office offerings. What we will be keeping an eye on is how they continue to deliver on their announced technology innovations and roadmaps.”

Analysts were divided over the future prospects for Avaya. Charles King of Pund-IT Inc. told SiliconANGLE that in addition to the fresh funding, Avaya possesses some valuable intellectual property assets too, owning more than 4,000 existing and pending technology patents.

“One interpretation of its lenders’ willingness to support the restructuring plan is that they believe Avaya can be rebuilt into a functional, profitable business again,” King said. “Alternatively, it could be that the new funding will enable Avaya to keep operating and support its existing customers and suppliers while its owners look for ways to profitably sell off its assets. Or we could see a combination of both approaches, resulting in Avaya emerging as a leaner and more focused vendor. In any case, the company’s long and strange journey doesn’t appear to be over yet.”

Rob Enderle of the Enderle Group was less convinced about Avaya’s prospects, however. He told SiliconANGLE that Avaya is one of the last surviving remnants of yesteryear’s telecommunications industry and has struggled to reinvent itself for the modern age.

“It has historically been undermarketed, and given the need to change its image from an obsolescent telecom firm to one that is more forward-looking, it continues to struggle to be relevant, which doesn’t bode well for its long-term future,” he said. “Avaya looks like a company that is running out of time.”

Photo: Avaya/Facebook

Feb 14 (Reuters) - Avaya Holdings Corp (AVYA.N) has filed for Chapter 11 bankruptcy and secured a financing of $780 million as it restructures its business, the IT firm said on Tuesday.

Avaya said upon completion of the restructuring process it will reduce its total debt by more than 75%, from nearly $3.4 billion to about $800 million.

The new capital is "expected to provide substantial liquidity to support Avaya during the process and beyond," it said.

The cloud communications company added it would continue to serve its customers and partners without interruption and expects to complete the process in 60 to 90 days.

Avaya had said there was substantial doubt about its ability to continue as a going concern in light of a debt maturity in 2023, according to a Wall Street Journal report in December, which cited people familiar with the matter.

Earlier in September, Avaya has also announced restructuring, including job cuts, to reduce costs. Avaya's shares have fallen nearly 99% last year.

Evercore Group is serving as financial advisor to Avaya for the process.

Reporting by Tiyashi Datta in Bengaluru; Editing by Shailesh Kuber

Our Standards: The Thomson Reuters Trust Principles.

Avaya Holdings Corp. on Tuesday filed for chapter 11 for the second time in six years as it struggles to transform itself from a traditional office telecommunications equipment business into a subscription-based software provider.

The company said it filed in the U.S. Bankruptcy Court in Houston with a plan supported by most senior lenders to cut its debt by more than 75%, to roughly $800 million from $3.4 billion, and turn the page on an earnings miss last year that depressed the prices of its debt and stock.

Avaya...

Avaya Holdings has entered into a restructuring support agreement, with the support of more than 90% of the company’s secured lenders.

Implementing the financial restructuring will accelerate Avaya’s ongoing business transformation, significantly enhance its ability to invest in its innovative cloud-based communications portfolio and position the company for long-term success.

Completing the financial restructuring will reduce the company’s total debt by more than 75%, from approximately $3,4-billion today to approximately $800-million.

Additionally, it will substantially increase Avaya’s cash and strengthen its liquidity position, resulting in an expected emergence balance sheet with less than 1x net leverage. Due to the overwhelming support of its financial stakeholders, the company expects to implement the financial restructuring on an expedited basis and complete this comprehensive balance sheet de-leveraging within 60 to 90 days. These actions will not impact the company’s customers, channel and strategic partners, suppliers, vendors or employees.

Alan Masarek, Avaya’s CEO, says: “I joined Avaya to help unlock the power of its iconic brand, global customer footprint, massive partner ecosystem, large-scale communications deployments and outstanding team. Building on this tremendous foundation, we have made significant progress pioneering an ambitious business model transformation, establishing a competitive product strategy for our subscription and cloud-delivered services and implementing operational efficiencies to better serve the Avaya ecosystem.

“Strengthening Avaya’s capital structure is a critical step to fully realize our transformation, and we are excited to move ahead as a well-capitalized company with one of the strongest balance sheets in our industry that includes substantial cash to invest in our own success.”

With substantially improved financial flexibility, the company will accelerate its investment in innovative communications products, solutions and services for customers, including the Avaya Experience Platform, its cloud-based contact centre offering.

Masarek adds: “We appreciate the strong support from our investors, who recognize the incredible value in Avaya’s business, brand and opportunities ahead. I also thank our customers and partners for their continued trust, as well as Avaya’s team members for their unwavering focus on providing exceptional service and support to those we serve. With this additional financial strength, we will be ideally positioned to accelerate innovation and advance our cutting-edge, long-range product roadmaps for the benefit of our customers.”

To efficiently implement the financial restructuring, Avaya and all of its US subsidiaries today filed voluntary prepackaged Chapter 11 cases in the US Bankruptcy Court for the Southern District of Texas. During this process, Avaya will continue serving its customers and partners without interruption and providing them with outstanding communications solutions, service and support as usual.

The company has received commitments for $628-million in debtor-in-possession financing, including a $500-million new-money term loan from the investor group led by Apollo Global Management and Brigade Capital Management, among others, and a $128-million ABL facility from a bank syndicate led by Citi.

Upon Avaya’s emergence from the court-supervised process, the $500-million new-money term loan and $128-million ABL facility will roll into exit facilities.

Additionally, as part of the financial restructuring, certain members of the investor group have committed to provide $150-million of additional new-money financing through a fully backstopped debt rights offering at exit. This new committed financing of approximately $780-million, together with cash on hand and cash generated from ongoing operations, is expected to provide substantial liquidity to support Avaya during the restructuring process and beyond.

Avaya has filed a number of customary motions with the court to support its operations during the court-supervised process, including the continued payment of employee wages and benefits without interruption. Pursuant to the terms of the financial restructuring, all of the company’s vendors and suppliers will be paid in full, regardless of when goods or services were delivered. Vendors and suppliers to Avaya’s non-US subsidiaries will continue to be paid in the ordinary course.

Avaya also announced that it has extended and expanded its global, strategic partnership with RingCentral, which was formed in 2019 to introduce and launch Avaya Cloud Office by RingCentral.

Avaya will continue to act as the exclusive sales agent for direct and partner sales of Avaya Cloud Office, Avaya’s exclusive multi-tenanted cloud PBX solution, in the geographies where it is available. The partnership has also expanded to include additional go-to-market constructs that enable Avaya to sell Avaya Cloud Office to its installed base on a direct basis.

In addition, Avaya will be compensated in cash as Avaya Cloud Office seats are sold and, in connection with the financial restructuring, RingCentral’s preferred stock in Avaya will be eliminated.

“We are pleased to extend, expand and enhance our partnership with RingCentral, which provides Avaya an efficient way to deliver a market-leading multi-tenanted cloud PBX offering to our customers as part of our broader suite of communications solutions,” Masarek says. “We look forward to building on the Avaya Cloud Office footprint and continuing to support the adoption of seamless cloud functionality by our global customers at a pace that meets their business needs.”

After protracted negotiations with creditors, ailing digital communications solutions provider Avaya (AVYA) finally filed for bankruptcy on Tuesday.

As the restructuring support agreement has been signed by more than 90% of the company's secured lenders, implementation should go swiftly with Avaya expected to emerge as a private company within the next 60 to 90 days.

Completing the Financial Restructuring will reduce the Company’s total debt by more than 75%, from approximately $3.4 billion today to approximately $800 million. Additionally, it will substantially increase Avaya’s cash and strengthen its liquidity position, resulting in an expected emergence balance sheet with less than 1x net leverage.

The company has received commitments for an aggregate $628 million in debtor-in-possession (“DIP”) financing, including a new $500 million term loan facility from secured creditors Apollo Global Management (APO) and Brigade Capital Management, among others.

In addition, a bank syndicate led by Citigroup (C) will provide a new $128 million asset-based lending ("ABL") facility.

Following completion of the restructuring, both loans will be rolled into exit facilities.

Moreover, a number of secured creditors have agreed to backstop a $150 million rights offering at exit.

In aggregate, Avaya has secured almost $780 million in new capital which together with cash on hand and cash generated from operating activities, is expected to provide substantial liquidity to support the company during the restructuring process and beyond.

Lastly, the company has restructured its strategic partnership with RingCentral (RNG) with RingCentral's $125 million in the company's 3% Series A Convertible Preferred Shares being cancelled:

Avaya will continue to act as the exclusive sales agent for direct and partner sales of Avaya Cloud Office, Avaya’s exclusive multi-tenanted cloud PBX solution, in the geographies where it is available. The partnership has also expanded to include additional go-to-market constructs that enable Avaya to sell Avaya Cloud Office to its installed base on a direct basis. In addition, Avaya will be compensated in cash as Avaya Cloud Office seats are sold and, in connection with the Financial Restructuring, RingCentral’s preferred stock in Avaya will be eliminated.

As predicted by me for some time already, common equity holders will be wiped out at the end of the restructuring process as clearly stated in the company's Public Equity Investors FAQ:

Existing equity holders should note that the NYSE is expected to commence delisting proceedings with the common shares likely to start trading on the Pink Sheets on Wednesday or later this week.

Please note that investors with short positions in the common shares won't be required to cover.

Not surprisingly, Avaya is handing over ownership of the ailing company to secured creditors in bankruptcy to reduce debt and get access to additional liquidity.

With Avaya expected to emerge as a private entity within the next 60 to 90 days, common shareholders should sell their holdings and move on as soon as the stock commences trading on the Pink Sheets later this week.

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Securities Litigation Partner James (Josh) Wilson Encourages Investors Who Suffered Losses Exceeding $100,000 In Avaya To Contact Him Directly To Discuss Their Options

New York, New York--(Newsfile Corp. - February 16, 2023) - Faruqi & Faruqi, LLP, a leading national securities law firm, is investigating potential claims against Avaya Holdings Corp. ("Avaya" or the "Company") (NYSE: AVYA) and reminds investors of the March 6, 2023 deadline to seek the role of lead plaintiff in a federal securities class action that has been filed against the Company.

If you suffered losses exceeding $100,000 investing in Avaya stock or options between November 22, 2021 and November 29, 2022 and would like to discuss your legal rights, call Faruqi & Faruqi partner Josh Wilson directly at 877-247-4292 or 212-983-9330 (Ext. 1310). You may also click here for additional information: www.faruqilaw.com/AVYA.

There is no cost or obligation to you.

Faruqi & Faruqi is a leading minority and Woman-owned national securities law firm with offices in New York, Pennsylvania, California and Georgia.

Avaya provides software products for business collaboration and contact center management. Since October 2019, Avaya has been engaged in a strategic collaboration with RingCentral, Inc., which has accelerated Avaya's transition to the cloud. The new operating system, Avaya Cloud Office by RingCentral ("ACO"), was supposed to allow Avaya to monetize its small to medium business customer base immediately while concomitantly allowing it to focus on the development of a next-generation cloud contact center.

But as the Avaya class action lawsuit alleges, defendants failed to disclose that: (1) the RingCentral partnership came with onerous requirements that were crippling Avaya's business metrics and financial prospects, including that Avaya granted RingCentral exclusive rights to certain products to its customers, meaning that Avaya had to discontinue certain of its own product offerings that had only recently begun achieving momentum, and that ACO conflicted with other Avaya product offerings, causing Avaya to have to alter those offerings, resulting in Avaya losing some important members of its executive team; (2) the arrangement with RingCentral had exposed Avaya to losses as RingCentral paid Avaya commissions up front, which would need to be returned if Avaya later missed on sales thresholds; and (3) Avaya had defective internal controls which prevented its senior executives from formulating accurate budgets and forecasts.

On July 28, 2022, Avaya announced the termination of its Chief Executive Officer James M. Chirico, Jr.. The Company also announced preliminary Q3 2022 financial results that included expected revenues and adjusted EBITDA well below previously given guidance and an unquantified but "significant" impairment charge. In addition, Avaya withdrew its 2022 guidance.

On this news, Avaya's stock price fell $1.19 per share, or 56.99%, to close at $0.90 per share on July 29, 2022.

Then, on August 9, 2022, Avaya announced that: (1) it determined there was substantial doubt about its ability to continue as a going concern; (2) it would not timely file its financial statements for the quarter ended June 30, 2022; (3) its Audit Committee commenced internal investigations into circumstances surrounding the Company's financial results for the quarter; and (4) the Audit Committee also commenced an investigation into matters raised by a whistleblower.

On this news, Avaya's stock price fell $0.51 per share, or 45.54%, to close at $0.61 per share on August 9, 2022.

Finally, before the market opened on November 30, 2022, Avaya disclosed in a Current Report filed on Form 8-K with the SEC that "control deficiencies management had been reviewing represent material weaknesses in the Company's internal control over financial reporting" and that "management's assessment of ICFR included in Item 9A of the Company's Annual Report on Form 10-K for its fiscal year 2021 ended September 30, 2021, filed with the [SEC] on November 22, 2021 should no longer be relied upon." Specifically, the Form 8-K stated that the Company "did not design and maintain effective controls related to the information and communication component of the Committee of Sponsoring Organizations of the Treadway Commission framework," "did not design and maintain effective controls to ensure appropriate communication between certain functions within the Company," and "did not design and maintain effective controls over the ethics and compliance program."

On this news, Avaya's stock price fell $0.16 per share, or 14.28%, to close at $0.96 per share on November 30, 2022.

The court-appointed lead plaintiff is the investor with the largest financial interest in the relief sought by the class who is adequate and typical of class members who directs and oversees the litigation on behalf of the putative class. Any member of the putative class may move the Court to serve as lead plaintiff through counsel of their choice, or may choose to do nothing and remain an absent class member. Your ability to share in any recovery is not affected by the decision to serve as a lead plaintiff or not.

Faruqi & Faruqi, LLP also encourages anyone with information regarding Avaya's conduct to contact the firm, including whistleblowers, former employees, shareholders and others.

Attorney Advertising. The law firm responsible for this advertisement is Faruqi & Faruqi, LLP (www.faruqilaw.com). Prior results do not ensure or predict a similar outcome with respect to any future matter. We welcome the opportunity to discuss your particular case. All communications will be treated in a confidential manner.

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