Unified comms specialist Avaya has filed for bankruptcy protection as it looks to get on top of debts that are taking a heavy earnings toll, while ruling out any short-term sale of its contact center business.
Faced with rising debt costs, increasing market competition and declining revenue, the Santa Clara, Calif. -based company had no choice but to protect itself legally from its creditors. "After the chapter 11 filing, we will continue to meet the commitments we have made to our customers, partners and employees in the ordinary course of business, subject to Bankruptcy Court approval, as necessary", Kennedy said to its suppliers.
"We believe this is good news for Canadian organizations, both large and small that depend on Avaya and former Nortel technologies to run their businesses".
Given that, Avaya might be fairly said to be journeying between the old hardware-focussed world of physical CPE, with its long churn times, maintenance and support contracts, expensive upgrades and so on, to the sunlit uplands of the equivalent software-as-a-service, cloud-based offerings.
In a bid to carry on through the filings, and hopefully come out on the other side with many of its underlying issues addressed, Citibank has underwritten a debtor-in-possession (DIP) financing facility valued at $725 million. "Now, as a result of the terms of Avaya's debt obligations and the upcoming debt maturities, the company is in need of recapitalization", Kennedy said. It said it would not be selling the group as part of the bankruptcy filing, though it's negotiating deals to sell other business units. "Pursuing restructuring through chapter 11 will enable us to reduce Avaya's debt and interest expense, while providing increased financial flexibility".
The telecommunications company has been struggling for a while now due to the fact that it has failed to properly transition from a hardware-driven company to an organization that benefits primarily from software and services.
The vendor reported that fourth-quarter revenue was $958 million, up $76 million from the fourth quarter of 2015.
Channel exec Vlad Shmunis, founder and CEO of cloud communications and collaboration provider RingCentral, claims the news is a reminder to all of what the mobility movement can do to business models. Dropping demand for UC hardware - a common plight among legacy equipment vendors as they realign around cloud software - led to the downturn, Avaya stated. "It's because of this shift that we will continue to see disruption in the business communications space", Shmunis claimed. Plans to sell its contact center business are on hold as Avaya focuses on restructuring debt, the company said in a statement.