Avaya files for bankruptcy

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Avaya files for bankruptcy

To reduce debt load.

Telecommunications company Avaya has filed for chapter 11 bankruptcy to reduce its debt load of about US$6.3 billion but said it would not sell its call centre business, which it had tried to do last year.

The bankruptcy underscores the challenges telecommunications companies face as they transition to software and services from hardware. Early last year, Avaya had planned to sell its call centre business but did not reach a deal with buyout firm Clayton, Dubilier & Rice LLC, which had been in the lead to acquire it for about US$4 billion. 

Avaya said it must focus on its debt and that a sale of the call centre would not maximise value for its customers or creditors. It is still negotiating deals to sell parts of its business.

The company is hashing out the terms of a restructuring deal with its creditors. The original goal was to have one in place before bankruptcy, but an agreement was not reached.

Avaya faced a deadline at the end of January in agreements with creditors to address its debt or potentially default.

The company has been burdened by debt stemming from an US$8.2 billion buyout in 2007 by private equity firms Silver Lake Partners LP and TPG Capital LP, with US$600 million due in October. Interest expense of more than US$400 million a year has been pushing Avaya into losses.

At Sept. 30, Avaya owed its pensioners US$1.7 billion.

"Avaya's current capital structure is over 10 years old and was put in place to support our business model as a hardware-focused company, which has evolved significantly since that time," said CEO Kevin Kennedy.

"Now, as a result of the terms of Avaya's debt obligations and the upcoming debt maturities, we need to recapitalise the company."

The company said an affiliate of Citigroup would provide a US$725 million loan to fund its operations during the reorganisation, which is expected to last at least 45 to 60 days.

Avaya's revenue fell to US$958 million in the fourth quarter ended on Sept. 30 from US$1 billion a year earlier, according to financial results released today. For the fiscal year, the company posted a net loss of US$750 million.

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