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NEW YORK A U.S. bankruptcy court judge granted
Avaya Inc approval on Friday to tap $425 million of the $725
million loan proposed to carry the telecommunications company
through its restructuring, funds the company said were essential
to continue operations.
Avaya filed for Chapter 11 bankruptcy protection on Thursday
to cut its debt of about $6 billion after efforts to sell its
call center business and reach a consensual deal with creditors
The bankruptcy underscored the challenges telecoms companies
face as they transition to software and services from hardware.
“The company has taken a decisive step to rightsize its
balance sheet,” Pat Nash, one of the company’s attorneys, told
Judge Stuart Bernstein at the U.S. Bankruptcy Court for the
Southern District of New York.
Nash said Avaya would be “marrying a balance sheet
restructuring with an operational transformation.”
The company’s lawyers said a significant portion of the $725
million loan, extended by an affiliate of Citigroup Inc for up to a year, was funded by Avaya’s existing lenders.
Avaya plans to return to U.S. bankruptcy court on Monday for
approval on other expenses.
Buyout firm Clayton, Dubilier & Rice LLC (CD&R) had been in
the lead to acquire Avaya’s call center business for about $4
billion. But Avaya and CD&R could not agree on price, terms or
how the deal would effect Avaya’s pension obligations, a person
familiar with the matter said on Thursday.
Avaya has liabilities totaling about $1.5 billion stemming
from its pension and other promised post-employment benefits.
The Santa Clara, California-based company faced potential
penalties from lenders on Jan. 28 after it did not turn in its
annual financial statements for its fiscal year on Dec. 29.
Avaya has consistently reported losses, stemming in part
from costs related to its debt. It was taken private in 2007 for
$8.2 billion by private equity firms Silver Lake Partners LP and
TPG Capital LP.
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