Avaya enters Chapter 11 bankruptcy protection, but not in Canada

The Canadian subsidiary of Avaya is not part of the just announced Chapter 11 protection filing by Avaya Inc.

Avaya’s Chapter 11 bankruptcy protection strategy was not a secret, nor a surprise to many in the industry or the channel. But this filing does have some nuances that set it aside from other filings in the IT industry.

Avaya has gone down this path to formally restructure its balance sheet so that it can better position itself in the long term, according to the vendor. The company got to this point from taking on debt after major acquisitions in the last decade highlighted by the Nortel deal.

As part of the restructuring process, Avaya has sent over voluntary petitions under chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. According to this filing, Avaya’s foreign affiliates, including Avaya Canada, are not included in the filing and will continue normal operations.

CDN has obtained a document sent by Avaya president and CEO Kevin Kennedy to its suppliers saying the company is operating the business as usual, and remain fully committed to providing the same innovative products and industry-leading services to customers.

“At this time, we are not discontinuing any products or services. After the chapter 11 filing, we will continue to meet the commitments we have made to our customers, partners and employees in the ordinary course of business, subject to Bankruptcy Court approval, as necessary,” Kennedy said to its suppliers.

In addition to this document, Kennedy also said that by seeking Bankruptcy Court approval of $725 million in debtor-in-possession financing which, if approved, will provide Avaya with additional liquidity to fund operations throughout the chapter 11 process.

That $725 million debtor-in-possession financing is underwritten by Citibank and is subject to court approval.

Industry analyst Roberta Fox of the Fox Group also took the news of Avaya’s filing for bankruptcy as no surprise.

However, what did surprise her was how the company was able to obtain additional short-term financing from traditional investors. “This move by an affiliate of Citigroup shows a vote of confidence in Avaya, and particularly the contact center technology portfolio, that they announced is not for sale at this time,” she told CDN.

“We believe this is good news for Canadian organizations, both large and small that depend on Avaya and former Nortel technologies to run their businesses.  Some of our large enterprise and government customers that have legacy Avaya telecom and contact center environments have been investigating in alternatives, and the Avaya financial situation has been a major concern to them for future procurement considerations.  They are also closely analyzing the shift by the telecom vendors to move to Opex [operational expenditure] oriented software assurance pricing models which is causing significant increases in telecom operating costs for some organizations in the future,” she added.

Kennedy described the process as a “difficult time for Avaya.” But, he explains his reasons for the networking and collaborations vendor taking this action at this time in the document.

“We have been working very hard to evaluate options to address Avaya’s capital structure.  While our business is healthy and performing well, our current capital structure is nearly 10 years old, put in place to support our business model as a hardware-focused company, which has evolved significantly since that time. This restructuring is a critical step in our ongoing transformation to a successful software and services business.  Now, as a result of the terms of Avaya’s debt obligations and the upcoming debt maturities, the company is in need of recapitalization,” Kennedy said.

Kennedy also told suppliers that it was hard to pinpoint a timeframe for exiting Chapter 11. But added that Avaya plans to be transparent throughout the process.

But not all share Avaya’s optimism. Top Avaya Canada channel partner Jeff Wiener, president and founder of CDN Top 100 Solution Provider Digitcom Canada Inc. of Toronto said the “news isn’t good” overall.

“It’s very early days though with respect to the Chapter 11 filing, and I don’t completely understand the overall impact to Avaya’s product portfolio, and their go-forward strategy. We will definitely know more over time, and the next two to three months will provide a much better indication as to how this will play out,” Wiener said.

In regards to Digitcom’s business, the Avaya chapter 11 filing does impact them as it is a Diamond Dealer in Avaya’s channel network. Wiener told CDN that this will change the course of conversations his company has with clients.

“Our hope is that Avaya comes out of this healthier financially, and I remain optimistic,” Wiener said.

From a channel perspective, Fox has spoken to some long-standing Avaya channel partners and they have told her they have been investigating alternate manufacturers to represent with a particular focus on cloud-oriented solutions.

Fox believes that 2017 will see a major shift in Canadian telecom spend from the traditional top five players to newer entrants who will continue to take away market share as the platforms continue to evolve to application-oriented solutions hosted on virtual machines running on site or in hosted data centres.

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Jim Love, Chief Content Officer, IT World Canada

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Paolo Del Nibletto
Paolo Del Nibletto
Former editor of Computer Dealer News, covering Canada's IT channel community.

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