Telecoms company, Avaya files for bankruptcy

On Jan 19, telecommunications company Avaya Inc filed for Chapter 11 bankruptcy (under the United States Bankruptcy code)

Avaya made an agreement with creditors to restructure its debt by the end of January. In addition to a debt load of about $6.3 billion, as of September 30th last year, Avaya owed $1.7 billion in pension fees.

With revenue falling to $958 million in the fourth quarter of 2016, down from $1 billion the previous year, Avaya posted a net loss of $750 million for the fiscal year. Although the company planned to sell its call centre business last year, they were unable to reach a deal with buyout firm Clayton, Dubilier & Rice LLC.

Focusing on its debt, Avaya is ironing out terms of a restructuring deal with creditors. This includes a $725 million loan from an affiliate of Citigroup Inc, which would provide funding for its operations for up to a year during the reorganisation.

Avaya insists this loan is essential to reassure jittery vendors who, through fears about the company’s financial health, have been shortening payment periods and reducing credit terms.

The problems at Avaya highlights the challenges faced by telecommunications companies as they move from hardware to software and services

The Santa Clara, California-based company has been burdened by debt stemming from an $8.2 billion buyout in 2007 by private equity firms Silver Lake Partners LP and TPG Capital LP. Interest expense of more than $400 million a year has been pushing Avaya into losses.

CEO Kevin Kennedy clearly stated that the filing for Chapter 11 only affects Avaya in the United States. Canadian and other worldwide business interests are not included.

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