Avaya has taken next important steps in the bankruptcy process, according to an industry briefing by John Sullivan, CFA VP & Corporate Treasurer for Avaya.  Here are my (simplified) understandings of and musings on the most recent announcements:

  • Avaya has reached agreement with the majority of “first lien debt holders”, the U.S. Pension Benefit Guaranty Corporation (PBGC), and the Unsecured Creditors Committee (UCC) to support Avaya’s proposed Plan of Reorganization.  This agreement significantly reduces the possibility that Avaya will have to sell off corporate assets to cover the debt the way Nortel did. (The networking business was sold off in July. No other sale of assets is planned at this time.)
  • On August 25th, the Court approved Avaya’s amended Disclosure Statement. Creditor voting is schedule for October 27, 2017, with a confirmation hearing November 11, 2017, and exit from bankruptcy 2 to 3 weeks later.
  • While Avaya’s original debt restructuring plan called for debt reduction of about $4B, the latest PSA now has debt reduction at “more than $3B.”  Avaya will emerge with $2.9B in debt which is about half of what it was. The $6B debt is being converted into equity (creditors will hold the equity) with the First Lien Creditors holding 91.5%, the Second Lien Creditors holding 1%, and the PBGC holding the remaining 7.5%.  The previous venture capital owners (Silver Lake Partners and PPG) will have no further stake in new organization.
  • Avaya is convinced that the Second Lien Creditors, who may be left holding much of the bag when this is said and done, are not in much of a position to hold up the process. However, it may be November before this is known for sure.
  • Avaya also announced that it plans to emerge from Chapter 11 as a public-traded company on either the NYSE or NASDAQ after being a privately held company for 10+ years.  This may provide an avenue for additional investment into Avaya.
  • Avaya will be transferring certain pension obligations to a federal agency called the Pension Benefit Guaranty Corporation (PBGC).  PBGC will receive a lump sum payment from Avaya sometime after it emerges from bankruptcy. The intent of this transfer is to change a portion of the pension commitment from an ongoing, annual expense to a one-time expense.  Avaya expects the “vast majority” of pensioners to receive the full value of their benefits.
  • The “new” Avaya intends to be focused on a shift to software and services (rather than hardware), more managed services, and a focus on operational excellence.
  • Avaya is due back in court on August 23rd to get the PSA approved. Should the court approve, Avaya can then work on getting creditors to approve the plan. 45 to 60 days after that, the court would hold another hearing to potentially approve the plan and set the stage for Avaya’s final emergence from Chapter 11.  That could happen as early as October 2017.

In a separate press release, Avaya announced preliminary results from 3rd quarter of 2017.  While revenues of about $800M for the quarter were down 9% compared to the 3rd quarter of last year, they were flat from the 2nd quarter of this year. Avaya says that this indicates that they continue to win new business and serve existing customers even as they slog their way through the bankruptcy process.

80% of Avaya sales is through Partner channels and the mood of Avaya Partners is “mixed”.  This has been a long haul for them and many have found other suppliers and products in the interim.  Avaya needs to focus on mending fences with their partners and making sure the product and service delivery pipeline in in good shape come the end of calendar 2017.

So, the process continues.  The bad news is that there are still areas of uncertainty about “the new Avaya”. The good news is that there is still an Avaya to be uncertain about.

Give me a call at 978-341-0700 or email me at geoffrey.tritsch@vantagetcg.com if you have any questions or if we can be of any assistance.