Avaya Holdings, a provider of solutions to enhance and simplify communications and collaboration, entered into a restructuring support agreement with overwhelming support of more than 90% of the company’s secured lenders. Implementing the financial restructuring will accelerate Avaya’s ongoing business transformation, significantly enhance its ability to invest in its innovative cloud-based communications portfolio and position the company for long-term success.
Completing the financial restructuring will reduce the company’s total debt by more than 75%, from approximately $3.4 billion today to approximately $800 million. Additionally, it will substantially increase Avaya’s cash and strengthen its liquidity position, resulting in an expected emergence balance sheet with less than 1x net leverage. Due to the overwhelming support of its financial stakeholders, the company expects to implement the financial restructuring on an expedited basis and complete this comprehensive balance sheet de-leveraging within 60 to 90 days. These actions will not impact the company’s customers, channel and strategic partners, suppliers, vendors or employees.
“I joined Avaya to help unlock the power of its iconic brand, global customer footprint, massive partner ecosystem, large-scale communications deployments and outstanding team,” Alan Masarek, CEO of Avaya, said. “Building on this tremendous foundation, we have made significant progress pioneering an ambitious business model transformation, establishing a competitive product strategy for our subscription and cloud-delivered services and implementing operational efficiencies to better serve the Avaya ecosystem. Strengthening Avaya’s capital structure is a critical step to fully realize our transformation, and we are excited to move ahead as a well-capitalized company with one of the strongest balance sheets in our industry that includes substantial cash to invest in our own success.”
“We appreciate the strong support from our investors, who recognize the incredible value in Avaya’s business, brand and opportunities ahead,” Masarek said. “I also thank our customers and partners for their continued trust, as well as Avaya’s team members for their unwavering focus on providing exceptional service and support to those we serve. With this additional financial strength, we will be ideally positioned to accelerate innovation and advance our cutting-edge, long-range product roadmaps for the benefit of our customers.”
To efficiently implement the financial restructuring, Avaya and all of its U.S. subsidiaries filed voluntary prepackaged Chapter 11 cases in the U.S. Bankruptcy Court for the Southern District of Texas. During this process, Avaya will continue serving its customers and partners without interruption and providing them with outstanding communications solutions, service and support as usual.
The company has received commitments for $628 million in debtor-in-possession financing, including a $500 million new-money term loan from the investor group led by Apollo Global Management and Brigade Capital Management, among others, and a $128 million ABL facility from a bank syndicate led by Citi. Upon Avaya’s emergence from the court-supervised process, the $500 million new-money term loan and $128 million ABL facility will roll into exit facilities. Additionally, as part of the financial restructuring, certain members of the investor group have committed to provide $150 million of additional new-money financing through a fully backstopped debt rights offering at exit. This new committed financing of approximately $780 million, together with cash on hand and cash generated from ongoing operations, is expected to provide substantial liquidity to support Avaya during the restructuring process and beyond.
Avaya has filed a number of customary motions with the court to support its operations during the court-supervised process, including the continued payment of employee wages and benefits without interruption. Pursuant to the terms of the financial restructuring, all of the company’s vendors and suppliers will be paid in full, regardless of when goods or services were delivered. Vendors and suppliers to Avaya’s non-U.S. subsidiaries will continue to be paid in the ordinary course.
Advisors
Kirkland & Ellis is serving as legal counsel to Avaya, Evercore Group is serving as financial advisor and AlixPartners is serving as restructuring advisor.
Akin Gump Strauss Hauer & Feld, Centerview Partners and Alvarez & Marsal are serving as legal counsel, investment banker and financial advisor, respectively, to an ad hoc group of Avaya’s first lien lenders. Paul, Weiss, Rifkind, Wharton & Garrison is serving as legal counsel and FTI Consulting is serving as financial advisor to an ad hoc group of Avaya’s first lien lenders. Debevoise & Plimpton is serving as legal counsel to certain holders of Avaya’s secured exchangeable notes.