Avaya files for chapter 11 in order to restructure debt

Friday 20 January 2017 | 08:52 CET | News

Avaya has filed for chapter 11 bankruptcy protection in the US while it restructures its debt. The company said it has been 10 years since it last overhauled its capital structure, and its business model has since changed to focus more on software and services rather than hardware. With major debt maturities coming up, it needs to refinance the group. 

Avaya sought a buyer for its call centre activities prior to considering the debt restructuring, but said it was unable to act on an offer of USD 3.9 billion. It's still considering an alternative bid of USD 3.5 billion, the company said in a SEC filing. Avaya also has also agreed USD 725 million in debtor-in-possession financing to take it through the process. The bankruptcy protection affects only its US operations, while the international activities will continue as normal. 

The company also released its annual results, showing a net loss of USD 750 million for 2016 compared to a loss of USD 144 million the previous year. In addition to lower sales, the company took impairment charges of USD 542 million to write down the value of goodwill and other intagible assets. Adjusted EBITDA still improved to USD 940 million from USD 900 million, with a record margin of 24.5 percent, thanks to staff reductions and other cost cutting. 

In the fourth quarter, bookings rose 13 percent from the prior quarter but were down 7 percent year-on-year at constant currency rates. The book-to-bill was greater than 1. Avaya said its total contract value was worth approximately USD 3 billion. 

The company ended the year with USD 336 million in cash, after free cash flow of USD 17 million over the year. Avaya did not release any figures on its debt position. 

For the first quarter, Avaya expects revenue of USD 870-875 million, down from USD 958 million both in the year-earlier period and in Q4 2016. The adjusted gross margin is expected stable at around 61-62 percent and adjusted EBITDA at USD 235-240 million. 

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