Why Aspect Isn't Another Nortel
Despite its bankruptcy filing, Aspect promises "business as usual."
I was as surprised as many to hear last week's news that Aspect Software had filed for Chapter 11. I talked with CMO Jim Freeze about what the filing means to the company, employees, and customers.
Aspect filed for bankruptcy to "fix a balance sheet problem," Freeze asserted straight away. "We generate over $400 million of annualized revenue and nearly $100 million of EBITDA. Our problem isn't our income statement; it's an overleveraged balance sheet."
Aspect has been more than able to pay its bills, but it did not have the flexibility to use cash from operations to invest in a rapidly changing market, he said.
But I had to wonder, if this is such a congenial refinancing by existing debt-holders, why the need to file bankruptcy at all?
Numerous entities hold Aspect's debt, Freeze said. In order to accomplish this kind of restructuring outside of the courts, a company must have 100% agreement from all debt-holders. That was not possible, and so Aspect entered into a so-called "pre-arranged agreement" with several of its current lenders to restructure and renew its existing credit facilities. In essence, Aspect is asking the court to approve the pre-arranged agreement.
The debt restructuring is "financial engineering that will allow us to [deleverage] our balance sheet. Most of our cash flow was being used to service debt -- we were too highly leveraged," Freeze said. "Our financial customers get this," he added.
As depicted below, Aspect considers the filing "a last major step of our transformation," an effort that began three years ago when the current management team took over, Freeze said.
Aspect is not the only highly leveraged firm owned by private equity in the contact center space. Three years after divestiture by Alcatel-Lucent, Genesys has $1 billion in debt and Avaya $6 billion. Before this process, Aspect had $800 million. Under the terms of the pre-arranged agreement, it expects to leave this restructuring with a debt load lighter by more than $300 million and approximately $50 million in available cash.
From a very personal perspective, when Nortel filed for Chapter 11, I had an outstanding invoice for a piece of marketing content I had created for the company. Eight years later, I remain a Nortel creditor, one of thousands still waiting for the courts to determine how it will divide the spoils of the 2011 patent sale, valued at $7.3 billion, to Google.
Freeze assured me that Aspect will pay all of its bills, and that it has no plans to decrease the size of the workforce. The message is "business as usual" for employees, partners and, most importantly, customers.