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Summary

In a move long anticipated by the marketplace, Avaya Inc. on January 19 announced that it had formally filed under Chapter 11 of the US bankruptcy code to restructure in order to better position the company for success. We believe this to be a positive move for Avaya.

A decision driven by heavy debt and a need for stabilization

This bankruptcy filing comes after months of rumors of a piece-part sell-off of company divisions, including its strong contact center, unified communications, and networking businesses. As a result, the company has secured $725m of debtor-in-possession financing from Citibank to provide liquidity for the next 12 months to support continuing operations and minimize business disruption. The company clarified that the filing affects only US divisions and will not disturb ongoing international operations. Driving the decision was $600m of debt due to be paid in October 2017 followed by additional payoffs of debt scheduled for 2018.

The company's actions should be well received by customers and channel partners, which have been worried that division sell-offs could negatively affect future product enhancements, as well as ongoing sales, service, and support efforts. In addition, the resulting relative stabilization of the company as a complete entity, albeit not guaranteed for the long term, will calm a large pool of customers who depend on tightly integrated contact center and unified communications products and services from Avaya. The reorganization filing will help negate aggressive sales actions by competitors, which have been "circling their wagons" around current and prospective Avaya customers, and calm Avaya debt holders who believed division sell-offs would have devalued the overall company. We believe that the Avaya filing was a necessary move to optimize the company's chances for a viable future. However, as in every bankruptcy under Chapter 11, the long-term results will be to trade off debt for ownership.

Appendix

Author

Ken Landoline, Principal Analyst, Customer Engagement

ken.landoline@ovum.com

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