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Restructure Ahead As Avaya Files For Chapter 11 Protection

Telecoms behemoth Avaya has filed for Chapter 11 Protection today to reduce its debt, but said it will not sell its call center business at this time.

The privately held Santa Clara, California-based company said it obtained a $725 million loan to fund its operations during the filing, which will be provided by an affiliate of Citigroup Inc.

The Company has obtained a committed $725 million 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 minimize 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.”

“This is a critical step in our ongoing transformation to a successful software and services business. 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 recapitalize the Company,” continued Mr. Kennedy. “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 to enhance our market-leading competitive position. Most importantly, we are keenly focused on minimizing disruption to our customers, partners, and employees and do not expect to experience any material disruptions during the chapter 11 cases.”

Nick Brandon, Sales Director at First Office, commented “The uncertainty around AVAYA’s financial position has been present for a while and we find ourselves discussing it with customers and potential customers from time to time. Whilst it is not great news, and it will affect potential AVAYA deals, we would merely turn them onto another solution if there was sufficient customer anxiety. However, I believe that everything will probably sort itself out – there is so much AVAYA product out there in the field that we won’t really see much of a change – we just might see a new lean and improved vendor taking over responsibility for the product (the core product is a very good one). This might be a simplistic view but down at ‘the coal face’ in the SME space it is difficult envisage anything else – I am sure it will be far more complicated than that behind the scenes and at board level but that is not our concern.

I remember something similar to this before with Worldcom/Verizon. Hopefully whatever emerges out of the other end of this process will be easier to do business with and be more engaged with the channel and it’s customers than is the current ‘regime’.”

Matt Townend – Director of Research and Consulting at Cavell Group said “This could potentially have a huge impact on the reseller market as partners who have traditionally sold on-premise PBX’s may the move to sell a Hosted VoIP solution. When Cavell researched the reseller market in the UK in 2014, only 60% of the 500 resellers we examined were currently selling a VoIP solution. We have heard of a number of Service Providers already targeting Avaya resellers with a view to them moving away from selling Avaya solutions.”

Kevin Boyer, Managing Director of Avaya only installer IPNetix, commented, “IPNetix are a good indicator of the state of Avaya and we are still growing. I think the media has blown a lot of this out of proportion because of the phrase ‘Chapter 11 Protection. If you look at the long list of companies that have filed for Chapter 11 you will find General Motors and United Airlines on there… look at them now!

This is a chance for Avaya to get their house in order and move forwards with their business in a modern world. Out in the market their products are still winning deals and we are still here to support partners. The other manufacturers are jumping on the news but I think that is mostly scaremongering, but why wouldn’t they do that? We have spoken to many of our partners about this and some multi-vendor partners may try and switch their customers over but many of them are trying to do this anyway. It’s business as usual.

CitiBank have made a $725m bet that Avaya will come out the other side of this. That’s another good indicator of how this is going go, I don’t think Avaya is going anywhere and I’m betting my whole business on that.”

GENBAND today affirmed that its support for former Nortel PBX customers will remain unaffected by the Avaya restructuring.

“Many of our enterprise customers own Nortel PBXs, and we want to confirm that today’s announcement will not affect any of their GENBAND services or GENBAND’s R&D roadmap,” said Patrick Joggerst, GENBAND’s EVP of Global Sales and Marketing. “As always, we are here to help our customers retain the value of their SL-100, CS 2100, AS 5300 or CS 1000 investments and transition to the real-time communications solutions that best empower and enable their business, either on premises or from our Kandy Business Solutions cloud.”

Guy Koster, General Manager & Practice Leader, Unified Communications and Collaboration Solutions, EMEA at Westcon commented, “This is good news, rumours have been circulating the market for some time about the situation and this gives the Channel some clarity. It may not be the best news but at least everyone knows what is happening now.

The restructuring of the debt will give Avaya new drive in a new market, they were paying so much interest on their debt… just imagine what they could do with that money if it was funneled into R&D. I don’t see any customer’s who are heavily invested in Avaya already ripping out kit anytime soon, partners have been asking us about the situation and as far as we are concerned it is business as usual.”

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David Dungay

Editor - Comms Business Magazine