Telecommunications company Avaya 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, 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 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 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 and TPG Capital, with $600 million coming due in October. Interest expense of more than $400 million a year has been pushing Avaya into losses.
“The new 7 and 7 Plus models attracted mostly loyal iPhone owners, rather than Android owners,” CIRP partner and co-founder Mike Levin said in a statement. “This continues the trend of new iPhone models attracting mostly repeat iPhone buyers.”
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 days.
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.
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