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Avaya Files Chapter 11 Reorg Plan

Avaya would use debt-for-equity swaps to reduce its debt by $4 billion as part of its plan to emerge from bankruptcy, the company announced yesterday.

The reorganization plan, filed Thursday in the U.S. Bankruptcy Court for the Southern District of New York, "will continue to evolve as Avaya works toward creditor consensus and confirmation by the Court, among other things," according to the company's press release. The key elements, according to Avaya, are:

  • Avaya's pre-filing debt will be reduced by more than $4 billion;
  • Avaya's restructuring will be achieved through a debt-for-equity exchange, in which certain secured creditors would acquire 100% of reorganized Avaya's equity;
  • Avaya's general unsecured creditors will share pro rata in a cash pool;
  • Avaya will continue to honor and maintain its qualified U.S. pension plans, which make up the vast majority of Avaya's pension obligations, following its emergence from bankruptcy; and
  • Avaya will continue to honor and assume its two collective bargaining agreements and all related agreements.

In the company announcement, Avaya CEO Kevin Kennedy called the plan, "a crucial step forward in our effort to recapitalize Avaya's balance sheet and create a stronger and healthier company that can create even more value for our customers." He added, "We look forward to working closely with all stakeholders over the coming weeks and months to refine the Plan and build consensus."

The plan is in keeping with Avaya's roadmap for the bankruptcy process, according to Zeus Kerravala, founder and principal analyst at ZK Research. "When Avaya went into bankruptcy, it had indicated it was working to come out of it in the summertime," Kerravala said in an email. "From everything I have heard coming out of Avaya, that plan appears to be on schedule and today's announcement is indicative of that.

"Customers and resellers should be aware that this won't impact them at all," Kerravala continued. "This is a plan to work out the debt and ownership structure of the company. As it has done since the filing date of January 19th, business operations will proceed normally."

Avaya is asking the bankruptcy court for a May 25 hearing that would initiate the process of submitting the reorganization plan to creditors for approval.

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