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Avaya Chapter 11 - Bankruptcy Update – Restructuring, Update and What does it mean?

First, as a consultant/industry analyst organization, it is our role to view these documents from the perspective of the effect on our clients and on the decision makers in the market place. Secondly, it is important to realize and understand that no one at FOX GROUP is a bankruptcy trustee or lawyer and our interpretation is based on years of business experience.

What is the significance of this news release?

This is a ‘debtor proposed plan’ which establishes a point of reference to negotiate with the stakeholders (Holders of Claim). In addition to the proposed sale of the Avaya Networking business that was announced in March, this plan addresses the approach that Avaya will take with respect to the dissolution of approximately $4B worth of debt.

As its name implies, this is the starting point for negotiations and is not a definitive resolution. To be clear, there are 12 classes of Holders of Claims ranging in priority with 5 categories having the right to vote on this proposed plan. The Court must approve this process before negotiations begin and at lease one of the Holders of Claim needs to vote for the plan for the court to consider approval.

What are the key points?

  1. Avaya will introduce a debt for equity swap wherein secured creditors will effectively become shareholders.

  2. Unsecured creditors will receive a percentage of the outstanding debt. This is part of the negotiations.

  3. Collective agreements will be honoured.

  4. Pension plans will be honoured.

  5. Avaya has asked for another 4 months to complete the negotiations. Given the size and complexity of the business, this is not unexpected.

What about the Avaya business status?

According to the release, ongoing business operations of Avaya are cashflow positive. This is a significant factor in that it shows they are making money on the day to day business operations.

A key point for the client base and the rest of the tech market players- If the business transformation and bankruptcy restructuring succeeds, Avaya should be able to remain a viable business entity in the future.

What does the plan NOT address?

On March 7, Kevin Kennedy, president and CEO of Avaya indicated that the business was going to focus on the key areas of Unified Communications and Contact Center. Hence, the Networking business has already been put up for sale and there is no mention of other non-core business operations.

The plan filed does NOT address the ongoing issues of corporate re-organization, structure or future of various product business units.

Final Thoughts

Avaya is undergoing a significant business transformation from a hardware manufacturing company to a software/IT business operation with Unified Communications and Contact Center as the key business and product focus areas.

Enterprise and government organizations that depend on their existing Avaya/Nortel telephone switches and contact center technologies should continue to monitor the process closely to determine the impact on viability in the future.

If you require high availability dispatch or emergency services communications and are running legacy Avaya blue systems, it is definitely important to look at the various players in order to enable your 911 services to move towards NG9-1-1 platforms.

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