Telecommunications company Avaya files for bankruptcy

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By Jessica DiNapoli and Tom Hals

<span class="articleLocation”>Telecommunications company Avaya Inc filed for
Chapter 11 bankruptcy on Thursday to reduce its debt load of
about $6.3 billion but said it would not sell its call center
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
center 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 $4 billion.

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

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

At Sept. 30, Avaya owed its pensioners $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 Chief Executive Officer Kevin Kennedy. “Now, as
a result of the terms of Avaya’s debt obligations and the
upcoming debt maturities, we need to recapitalize the company.”

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

Avaya’s revenue fell to $958 million in the fourth quarter
ended on Sept. 30 from $1 billion a year earlier, according to
financial results released Thursday. For the fiscal year, the
company posted a net loss of $750 million. (Reporting by Jessica DiNapoli in New York and Tom Hals in
Wilmington, Delaware; Editing by Lisa Von Ahn)

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