It is the inevitable truth of business that, in every market, some firms will go bankrupt or depart the market. Recently, Avaya (News - Alert) stepped in as one of the latest such bankruptcies, filing a slate of Chapter 11 petitions, though doing so with an eye toward the future.
A Chapter 11 filing uses the eponymous section of the U.S. Bankruptcy Code, and in this case, is limited only to those parts of Avaya operating within the United States. The various foreign affiliates connected to Avaya, meanwhile, aren't affected by this filing and will continue operating as normal, reports note.
In a bid to carry on through the filings, and hopefully come out on the other side with many of its underlying issues addressed, Citibank has underwritten a debtor-in-possession (DIP) financing facility valued at $725 million. The combination of the DIP and Avaya's incoming cash flow should allow the company to carry on with normal operations, making disruptions comparatively minimal. Evaluation of the company's capital structure, meanwhile, briefly put forth the possibility of selling the contact center business, but it was quickly found that selling that arm of the business wouldn't realize maximum value for the stakeholders involved. Instead, the company is focusing on its debt structure.
Avaya's CEO, Kevin Kennedy (News - Alert), commented, “Our business is performing well, and we are confident that we can emerge from this process stronger than ever, as this path is a reflection of our debt structure, not the strength of our operations or business model. Pursuing restructuring through chapter 11 will enable us to reduce Avaya’s debt and interest expense, while providing increased financial flexibility to further invest in innovation and growth to enhance our market-leading competitive position. Most importantly, we are keenly focused on minimizing disruption to our customers, partners, and employees and do not expect to experience any material disruptions during the chapter 11 cases.”
A common misconception in filing bankruptcy, especially at the corporate level, is that it means that the company itself will be out of the market directly. That's often not the case, though it does happen; a bankruptcy can simply mean an opportunity to rearrange some key elements, address a debt load, or other matters; it doesn't always mean businesses close. In Avaya's case, that looks to be especially true, and should allow the company to better focus on its core operations, getting back to profitability.
Bankruptcy doesn't mean what many think it does. In the right hands, it can deliver a valuable new start and a means to carry on in ways few expected. For Avaya, it will likely be a welcome help and a way to get itself back to its previous successes.