Struggling with its huge debt and waiting for resolution to the Chapter 11 filing, US-based communication technology firm Avaya is looking to find a viable path to exit Chapter 11 which it filed over six month ago, said senior executive. Today, company informed that it has entered into a plan support agreement (PSA) with holders of over 50% of its first lien debt including certain members of the ad hoc group of first lien creditors. The first lien debt holders receive payment before all other debt holders, and have the legal right to seize property from a borrower.
In addition, Avaya has reached agreement with U.S. Pension Benefit Guaranty Corporation (PBGC) to provide for the termination of the company’s obligations under the Avaya Pension Plan for Salaried Employees (APPSE) and the related transfer of those obligations to PBGC. In exchange, PBGC will receive a lump sum payment from Avaya when it emerges from Chapter 11. According to reports, Avaya will pay $300 million in cash and issue 7.5% of its reorganised holding company common stock to the PBGC.
Avaya said it has filed an amended plan of reorganisation and disclosure statement reflecting the terms of these agreements and will seek approval of its revised disclosure statement and the PSA at its scheduled court hearing on August 23, 2017.
According to Avaya, “The parties have agreed, among other things, to support the restructuring transactions contemplated by the Amended Plan, vote in favor of the Amended Plan when solicited in accordance with applicable law and not take any action inconsistent with the PSA or the transactions contemplated thereby.”
As a result, once the company has received approval from the Court to solicit creditor votes and receives the requisite votes, the amended plan is confirmable. Key terms of the amended plan include: the reduction of Avaya’s debt by more than $3 billion from pre-filing levels; settlement and transfer to PBGC of Avaya’s obligations under the APPSE; Avaya’s continued support of its obligations under the Avaya Pension Plan (APP); and initiation of steps to enable Avaya to emerge from chapter 11 as a public company.
“This is an important milestone in the chapter 11 process and marks Avaya’s progress toward our goal of emerging a stronger, more competitive company. Further, we believe this is a positive and beneficial outcome for our stakeholders. With a creditor-supported and confirmable plan of reorganisation in place, we now have a clear and viable path to emerge from chapter 11 in the near term,” said Kevin Kennedy, president and chief executive officer of Avaya.
India business has progressed strongly
Avaya said that while Avaya Inc. has been working through the Chapter 11 process in the US, India business has progressed strongly. “Over the last two years, we have been vocal about the transformation of the India business; we recognised the need to restructure in order to align to the demands of the Indian market and deliver software and services that local organisations need and ensure the success of our customers,” said Vishal Agrawal, Managing Director, India and SAARC, Avaya
“The transformation is proving positive – last year we reported that Avaya India closed its fiscal 2016 at a good quarter, and the business has continued to build from there. I am pleased to note this progress has continued, with the local business to date.” “We take great pride with the level of confidence and support that we continue seeing from our customers and partners in India,” he added.
On the new development around Chapter 11, Agrawal said, “This agreement provides a clear and viable path to exit Chapter 11 in line with our strategy. This is an important milestone as we work to emerge as a strong and competitive company in the coming weeks.”
What next for Avaya
According to industry analyst Sheila McGee-Smith, first lien debt holders receive payment before all other debt holders, and have the legal right to seize property from a borrower but that is unlikely in the case of Avaya as creditor of 50% lien debt have agreed to the revised plan.
Now, Avaya will pass the debt obligation associated with the APPSE, for salaried employees, to PBGC. In exchange, PBGC will receive a lump sum payment from Avaya when it emerges from Chapter 11. This changes a portion of the pension debt from an ongoing, annual expense to a one-time payout
Also, Avaya has agreed under the PSA to initiate the steps necessary to enable it to emerge from Chapter 11 as a public company, and to become listed on a major stock exchange. After 10 years as a private company, Avaya will be publicly traded once again.
Once the company has received approval from the court to solicit creditor votes and receives the requisite votes, the Amended Plan is confirmable. According to Sheila McGee-Smith, approximately 45 to 60 days after the amended disclosure statement hearing – and with the receipt of the necessary creditor votes – the court would hold a confirmation hearing. At that hearing, the court could confirm the amended plan, setting in motion Avaya’s emergence from Chapter 11.
Avaya has also announced that Jim Chirico, Avaya COO and global sales leader, will assume the position of CEO and join the board of directors, effective October 1, 2017. Current CEO Kevin Kennedy will retire from that role, as well as from his board position, but remain as an advisor to the company.